1. Managing Costs and Revenues--MBA I--Spring 2007 1 ISO 9000 International Organization for Standardization Internationally accepted guidelines for quality management and standards Cost of quality = 20 - 25 percent of sales

2. Managing Costs and Revenues--MBA I--Spring 2007 2 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

3. Managing Costs and Revenues--MBA I--Spring 2007 3 Elements of TQM Continuous improvement Customer focus Employee involvement

4. Managing Costs and Revenues--MBA I--Spring 2007 4 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

5. Managing Costs and Revenues--MBA I--Spring 2007 5 Other Quality Thoughts Poor quality is disastrous for service industries Increased quality = increased productivity Management accountants increase the focus…see page 186.

6. Managing Costs and Revenues--MBA I--Spring 2007 6 Ansari: MMQC Quality costs: costs incurred to ensure products/services meet customers’ expectations Features Performance

7. Managing Costs and Revenues--MBA I--Spring 2007 7 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

8. Managing Costs and Revenues--MBA I--Spring 2007 8 MMQC Types of quality costs Prevention Appraisal Internal failure External failure

9. Managing Costs and Revenues--MBA I--Spring 2007 9 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

10. Managing Costs and Revenues--MBA I--Spring 2007 10 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

11. Managing Costs and Revenues--MBA I--Spring 2007 11 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”

12. Managing Costs and Revenues--MBA I--Spring 2007 12 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

13. Managing Costs and Revenues--MBA I--Spring 2007 13 Environmental Activities Prevention activities Assessment activities Control activities Failure activities

14. Managing Costs and Revenues--MBA I--Spring 2007 14 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

15. Managing Costs and Revenues--MBA I--Spring 2007 15 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

16. Managing Costs and Revenues--MBA I--Spring 2007 16 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

17. Managing Costs and Revenues--MBA I--Spring 2007 17 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”