Managing Costs and Revenues--MBA I--Spring ISO 9000 International Organization for Standardization Internationally accepted guidelines for quality management and standards Cost of quality = percent of sales

Managing Costs and Revenues--MBA I--Spring Quality and Strategic Cost Management Quality and profitability are related Premium on quality leads to larger market share Premium on quality leads to higher ROI

Managing Costs and Revenues--MBA I--Spring Elements of TQM Continuous improvement Customer focus Employee involvement

Managing Costs and Revenues--MBA I--Spring IMA’s TQM Process Year One Quality council and staff Executive quality training Quality audits Gap analysis Strategic quality improvement plans Year Two Employee quality training Quality teams Establish measurement system and goals Year Three Revise compensation system Launch external initiatives (value chain) Review and revise

Managing Costs and Revenues--MBA I--Spring Other Quality Thoughts Poor quality is disastrous for service industries Increased quality = increased productivity Management accountants increase the focus…see page 186.

Managing Costs and Revenues--MBA I--Spring Ansari: MMQC Quality costs: costs incurred to ensure products/services meet customers’ expectations Features Performance

Managing Costs and Revenues--MBA I--Spring MMQC Strategic Implications of Quality Cost System Supports quality as a strategic adv. Provides the total cost of quality to a product Assists in avoiding non-productive time

Managing Costs and Revenues--MBA I--Spring MMQC Types of quality costs Prevention Appraisal Internal failure External failure

Managing Costs and Revenues--MBA I--Spring MMQC Quality Management System Understand customer requirements Establish quality goals Set work processes (P) Perform work & monitor output (A & I) Deliver product & monitor cust. satisf.(E) Perform root cause analysis

Managing Costs and Revenues--MBA I--Spring MMQC Quality Cost and Customer Satisfaction Total firm spending Spending by category Amount of financial benefits Focus on customer quality concerns Elimination of root causes

Managing Costs and Revenues--MBA I--Spring MMQC Value Index Develop customer perf. rankings Estimate quality costs for each element Compute the value index Cust. Perf. % / Cost % Root cause analysis and “fish bones”

Managing Costs and Revenues--MBA I--Spring MMQC Attribute Implications Technical Improved decision relevance Process understanding Behavioral Focus on Customer Requirements Improved quality attitudes Better mgt. Visibility…but watch out for “padding” Cultural Quality as a way of life Quality as an ethical value

Managing Costs and Revenues--MBA I--Spring Environmental Activities Prevention activities Assessment activities Control activities Failure activities

Managing Costs and Revenues--MBA I--Spring Measuring and Reporting Environmental Costs Traditional systems must be augmented by interviews Schedule costs into hazardous & non-hazardous categories Classify the costs by activities Report and analyze routinely

Managing Costs and Revenues--MBA I--Spring Managing Environmental Costs Accidents vs. collisions Product design Process design PP&E acquisition Operational venue Encourage value chain participation Routinely integrate MMEC into the decision making process Checklists EC Summaries Post-mortem reviews

Managing Costs and Revenues--MBA I--Spring MMEC--TBC Impact Technical Improved decision relevance Insight contrary to common beliefs Better process identification Environmental cost insight Behavioral EC visibility: what gets measured; gets done

Managing Costs and Revenues--MBA I--Spring MMEC--TBC, continued Cultural See the “Why Care” section Societal value sharing Changing environmental mindsets Compliance and control vs. avoidance Role of finance as “facilitator”