Enhancing Lean Six Sigma project cost of poor quality (COPQ) calculations

With a traditional Lean Six Sigma Cost of Poor Quality (COPQ) calculation of prevention, appraisal, internal failure, and external failure, one is to examine costs across the entire company using the categories. Organizations may not disagree with these ategories; however, they typically do not expend the resources to determine this costing. *

Organizations need to determine the financial benefits of Lean Six Sigma projects. How this is done can affect how projects are selected and executed. I think that other categories need to be considered when making these assessments.

My preferences is the term Cost of Doing Nothing Differently (CODND) to the Cost of Poor Quality (COPQ) term. The reason I have included the term differently is that organizations often are doing something under the banner of process improvement; e.g., these activities could include Lean manufacturing, TQM, ISO9000, and so on. The term Cost of Doing Nothing is not really broad enough since organizations are doing something. Because of this, I added the word differently to form the acronym CODND.

Lean Six Sigma and Six Sigma are to reduce the cost of poor quality (COPQ). In Six Sigma, the interpretation for COPQ has a less rigid interpretation than the traditional quality cost categories and perhaps a broader scope; however, the calaculation of COPQ centers around costs associated with defects or perhaps targets that have been established since no specification exist.

I prefer to base project financial benefits from the cost of doing nothing differently (CODND), which has broader costing implications than COPQ. In a traditional Six Sigma implementation, a defect needs to be defined, which impacts COPQ calculations. In transactional and other environments when there are no natural specifications, this can be difficult to accomplish.

In IEE, defect definition is not a requirement within an implementation or a CODND calculation. For financial calculations, not requiring a defect definition has advantages since the non-conformance criteria placed on many transactional processes and metrics such as inventory, and cycle times are often arbitrary in that criteria can differ between those who are creating the metric.

In an IEE implementation, if a defect definition is clear and most appropriate than CODND could equal a COPQ calculation. However, whenever there is no obvious defect definition, one can determine a CODND from which the project would give focus to reduce; e.g., reducing WIP and its current CODND carrying cost. In this series of volumes, I will use the nomenclature CODND.

* Reproduced from Integrated Enterprise Excellence, Volume III Improvement Project Execution: A Management and Black Belt Guide for Going Beyond Lean Six Sigma and the Balanced Scorecard, Forrest W. Breyfogle III, Bridgeway Books, 2008, Page 111, 112.