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SPQM03

The document discusses the concept of total cost of quality (COQ) and return on investment (ROI) for process improvements. It explains the four areas of quality costs: internal failure, external failure, appraisal costs, and prevention costs. It also introduces the iceberg model of quality costs and provides steps to calculate ROI for process improvements.

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5 views15 pages

SPQM03

The document discusses the concept of total cost of quality (COQ) and return on investment (ROI) for process improvements. It explains the four areas of quality costs: internal failure, external failure, appraisal costs, and prevention costs. It also introduces the iceberg model of quality costs and provides steps to calculate ROI for process improvements.

Uploaded by

Quỳnh Huỳnh
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Software Process & Quality

Management
Mel Rosso-Llopart © 2010

Estimating ROI

Mel Rosso-Llopart
Senior Lecturer, Executive Education Program
Institute for Software Research
Carnegie Mellon University
Agenda

 Total Cost of Quality (COQ)


 Four areas of quality:
• Internal Failure
• External Failure
• Appraisal Costs
• Prevention Costs
 The cost iceberg

© 2014 CMU-ISR 2
Cost of Quality
• Concept originated in the 1960’s

• Deming, Juran and Crosby “Quality is free”


• Primarily applied to manufacturing
• Heavily adopted by the Japanese
• Now being applied to Software and
therefore IT

© 2014 CMU-ISR 3
Process to Calculate ROI for IT Process
Improvement
• Steps
1. Identify opportunities where process
improvement can be measured and quantified.
2. Devise a coherent plausible formula for
calculating a cost savings for each process
improvement opportunity.
3. Reduce those calculations to a number that
becomes the ROI for the improvement effort
over time.

• Time frame for typical process


improvement effort 18 to 36 months.

© 2014 CMU-ISR 4
A Framework for Thinking About Trends in
IT
• Process-oriented management
• Rapid and continuous change
• Decentralization and globalization
• ERP Applications • Groupware
• Cheaper networking • Workflow
• Powerful PC •Intranets
• Universal standards •Knowledge mgmt
(TCP/IP, Web) Enables •Organization CAD tools

Infrastructure Applications

Requires
• Middleware
• Component software • Technologies for enterprise integration
• New network technologies • IT infrastructure to support agile bus. Proc.
• Better, Faster, Cheaper networks and UI’s

* Michael A. Cusumano
© 2014 CMU-ISR 6
Value of Improvement or The
Cost of Quality

Philip Crosby

© 2014 CMU-ISR 7
Internal Failure
•Rework •Re-testing
•Delays •Downgrading
•Re-designing •Downtime
•Shortages •Lack of flexibility
and adaptability
•Failure analysis

Can you think of others that directly


influence the company internally?

© 2014 CMU-ISR 8
External Failure
• Complaints

• Repairing goods and redoing services


• Warranties
• Customers’ bad will

• Losses due to sales reductions


• Environmental costs

© 2014 CMU-ISR 9
Appraisal Costs

© 2014 CMU-ISR 11
Prevention Costs
• Quality planning

• Supplier evaluation
• New product review
• Error proofing
• Capability evaluations

• Quality improvement team meetings


• Quality improvement projects
• Quality education and training
© 2014 CMU-ISR 11
So These Are Some of the Sources for
Estimating ROI
• The cost of doing business
• Prevention and checking what’s happening
• The cost of failing to do it right
• Internal and external failures in quality
• Therefore
The Cost of Poor Quality + the Cost of Good quality
= The cost of Quality

© 2014 CMU-ISR 12
Calculate ROI for IT Process Improvement

© 2014 CMU-ISR 4
Other Things to Consider
• The business of quality.
• The impact of decisions and choices we
make on the business we do.
• It is not that we have to fix what didn’t do
right which is paying twice for the job.
• …but the impact on our customer and the
market of bad quality.

© 2014 CMU-ISR 13
The Iceberg Model of Cost of Quality

© 2014 CMU-ISR 14
Group Exercise 3

Assume that your team is assigned to implement the project "Building a


website for Duy Tan University".
Discuss in group and give your group opinions to answer the questions: What
are potential costs of poor quality and iceberg costs while working on the
project. Please explain and give the specific examples for each listed cost.

* Send your group solution file (in pdf format) with the deadline is 21h00, 082/6/2024;
Note: List the full names of all members in the file.
•

© 2014 CMU-ISR 13

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