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Wednesday, July 14, 2010

Costs of Poor Quality

In our course we emphasize that Quality Managers ignore the economics of Quality at their peril.

Quality as far as most enterprises (especially hospital and laboratories) see it, is a necessary but unbalanced cost centre.  Money out with no financial return.  Many have written on the subject, and many have talked about looking at the costs of Prevention and Assessment (as input costs) and costs of finding and addressing Internal and External failure (as output).  The problem is that CEOs and accountants only get to see the input costs (quality control, safety equipment, proficiency testing, accreditation, quality salaries) but they never see the savings on reduced error. 
Big Mistake.

We have been looking at some of those failure (output) costs as measured in time.  Preliminary data shows that average error takes less than a minute to create, but can cost over 90 minutes to fix.  Our preliminary average is 116 minutes, and is likely to go up rather than down.  When the smoke clears, I anticipate that the mean will be much closer to 200 minutes, which means that if by virtue of a quality system you prevent 3 errors a day, you save approximately the time of 1 person every day.  More on this later.

For a more systematic approach, for those of you who have access to the journal ISO Focus, there is a very readable article entitled "The ISO Methodology - assessing the economic benefits of standards".  (Gurundino and Hilb.  ISO Focus June 2010)  which provides an approach to assessing impact.  For those without access as ISO members, they recommend contacting ISO (weissinger@iso.org) to get access to the Resources section.  Have to be from an academic, or research centre, or a company.

Here is a valuable number for your pocket: "...the impact from standards ranges from 0.15% to 3.0% of turnover."  This may seem like small potatoes, but for a tertiary care medical laboratory that comes to between $150,000 - $3,000,000 per annum.  If that is true, those are the kind of numbers that guarantee a quality team salary for a long time.
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2 comments:

  1. Credible statistics and ones difficult to ignore.
    A question about the cost of poor quality in a broader sense. Are there any estimates on the cost if the error reaches the patient - that is, a poor quality result is reported and the clinician acts upon it.
    I am thinking of further (unnecessary) testing ordered; invasive procedures (unnecessary); the costs related to putting the patient at unnecessary risk; and the list goes on ...
    ?research project possibly?

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  2. Thanks Sue...sounds like a good research topic. The ethical dilemma exists that if an error reaches a patient, and often it does, how can one quantitatively assign a cost on a patient’s life or well-being? “Hard” factors such as extra time in the hospital, further testing, further staff involvement to resolve can be estimated but the “price” of the actual trauma both physical and physiological would be difficult to predict. Any thoughts...?

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