Meeting Standards and Expectations
In order to tell if standards and expectations are met business performance measures must be developed which include the balanced scorecard, key performance indicators (KPIs), and the underlying financial impact of customer loyalty. Performance measures allow the organization to determine how well it is operating compared to strategic goals, benchmarks, and customer satisfaction.
Building a consistent customer base has a synergistic effect of more utilization by the customer through additional purchases or new products, more purchases through word of mouth to new customers, and new sales as a result to innovation. Customer loyalty results in a known CTQ measure where the organization can more readily determine improvements.
The balanced scorecard is used by many organizations to drive performance and accountability. The balanced scorecard focuses the organization on what was typically only financial measures. The balanced scorecard helps translate organizational strategy into action. Using the Balanced scorecard the organization develops performance measures in each of the four categories:
- Financial considerations for the management of the financial bottom line and costs.
- Customer concerns and the management of their expectations and needs for both present and future.
- Business processes which impact the efficiency of the business operation.
- Learning and Growth which affect the learning organization by developing the company in growth of corporate knowledge and expertise.
Key Performance Indicators (KPI) are measures used to track the performance of the organization to a high level strategic goal. Key performance indicators plays a role in the selection of Six Sigma projects. Two important KPI’s are “net present value” and “return on investment”.
Financial measures help determine revenue growth, market share, margin, and the cost of quality (COQ) The cost of quality (COQ) are those costs associated with providing quality products or services. Cost of Poor Quality is the sum of internal and external failures. There are four categories of quality cost. These are the appraisal, detection, internal failure, and external failure. The internal failure costs are costs associated with defects found before the customer receives the product or service. Internal failure costs are costs that are caused by products or services not conforming to requirements or customer needs. The external failure costs are costs associated with defects found after the customer receives the product or service. External failure costs are costs that are caused by deficiencies found after delivery of products and services to customers. Appraisal costs are costs incurred to determine the degree of conformance to quality requirements. Appraisal costs are associated with finding defects. Prevention costs are costs incurred to keep failure and appraisal costs to a minimum. The Cost of Poor Quality is the sum of internal and external failures.
What are your quality costs? What are you doing to manage them?