Cost Benefit Analysis

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From the course by University System of Georgia

Six Sigma and the Organization (Advanced)

174 оценки

University System of Georgia

Six Sigma and the Organization (Advanced)

174 оценки

Course 1 of 4 in the Specialization Six Sigma Green Belt

This course is for you if you are looking to dive deeper into Six Sigma or strengthen and expand your knowledge of the basic components of green belt level of Six Sigma and Lean. Six Sigma skills are widely sought by employers both nationally and internationally. These skills have been proven to help improve business processes and performance. This course will introduce you to the purpose of Six Sigma and its value to an organization. You will learn about the basic principles of Six Sigma and Lean. Your instructors will introduce you to, and have you apply, some of the tools and metrics that are critical components of Six Sigma. This course will provide you with the basic knowledge of the principles, roles, and responsibilities of Six Sigma and Lean. Every module will include readings, videos, and a quiz to help make sure you understand the material and concepts that are studied. You will also have the opportunity to participate in discussions and peer review exercises to give you the opportunity to apply the material to your daily life. Registration includes online access to course content, projects, and resources but does not include the companion text The Certified Six Sigma Green Belt Handbook (2nd edition). The companion text is NOT required to complete the assignments. However, the text is a recognized handbook used by professionals in the field. Also, it is a highly-recommended text for those wishing to move forward in Six Sigma and eventually gain certification from professional agencies such as American Society for Quality (ASQ).

From the lesson

Six Sigma and the Organization

Welcome to the Six Sigma Green Belt Specialization! Six Sigma skills are widely sought by employers both nationally and internationally. These skills help to improve business processes and performance. Your team of instructors, Dr. Bill Bailey, Dr. David Cook, Dr. Christine Scherrer, and Dr. Gregory Wiles, currently work in the College of Engineering and Engineering Technology at Kennesaw State University. They have collaborated to create a specialization that is all encompassing of the Six Sigma methodologies for both Yellow and Green belt. Completion of this specialization will provide you with the knowledge to either continue to full Six Sigma certification or simply advance your knowledge professionally. In this module you will be introduced to how Six Sigma interacts with the organization, lean principles, and project management basics.

Six Sigma Philosophy2:45

Luminaries and Path to Six Sigma5:47

What is Process2:22

Significance of Six Sigma2:25

Green Belt Roles1:20

Cost Benefit Analysis5:02

Key Concepts0:57

Meet the Instructors

David Cook, PhD
Assistant Professor of Mechanical Engineering Technology
Department of Mechanical Engineering Technology
Bill Bailey, PhD
Assistant Professor of Industrial Engineering
Department of Systems and Industrial Engineering

Our cost associated with quality consist not only

of the cost to attain a level of quality, but also to sustain that level.

As time goes by, we must also be mindful of the cost of poor quality.

These can consist of cost associated with customer dissatisfaction and

decreased customer loyalty.

Any cost thought to be excessive is called a cost of quality.

Internal and external failures are best known as cost of poor quality.

Whereas, appraisal and prevention are seen as cost to achieve quality.

Internal failure cost are defined by our failure to meet customer needs,

scrap, rework, etc., and/or cost of insufficient processes.

External failure cost are defined by our failure to meet customer requirements

and needs.

This are warranty charges, allowances and

can also be quantified in terms of lost opportunity or sales revenue.

Appraisal cost are incurred to determine the degree

of conformance to quality requirements.

Some examples of these are incoming inspection, final inspection and

quality audits.

Prevention cost are incurred to keep failure and appraisal cost to a minimum.

Some examples include quality planning, design reviews, and training.

Prevention cost are important,

because they entail small investment costs relative to a higher cost of poor quality.

When estimating cost to poor quality, consider this process.

First, identify opportunities for cost reduction.

These should be traceable to a specific actionable cause.

A Pareto analysis can be useful.

Next, quantify the size of the quality problem.

Sometimes it can be much higher than thought.

Put in terms of a measure important to the organization, such as sales.

It also helps to reveal known and unknown problems.

Look for opportunities to reduce customer dissatisfaction.

Examples can be warranty charges, claims, downtime and other disruptions.

Next, evaluate the progress of the quality improvement activities.

Finally, roll these findings into a strategic quality plan.

Regarding cost of poor quality, keep these important points in mind.

First, the largest cost of poor quality occurs after the product has shipped.

Focus first on quality issues earliest in the process for

managing internal quality cost.

External failure costs are much larger than internal failure costs.

But internal failure costs are far more easy to identify, quantify, and correct.

For quality improvement projects, start with internal failure costs attributable

to specific activities and operations.

Be careful when conducting a Cost Of Poor Quality analysis,

there are many pitfalls to watch for.

You must have relevant accounting experts to validate

Cost Of Poor Quality before presenting to management.

Realize that most accounting systems do not accurately reflect

the effect of Cost Of Poor Quality on operating costs.

For every real dollar reduction in Cost Of Poor Quality,

profit is increased by the same amount.

Finally, Cost Of Poor Quality is not directly proportional

to production volume.

Remember, long term,

control charts of Cost Of Poor Quality must reflect production volume.

Cost Of Poor Quality drastically increases

as the product progressively moves toward the customer.

Cost Of Poor Quality in one operation may be highly leveraged in another operation.

In other words, a reduction in Cost Of Poor Quality in one operation

could lead to an increase somewhere else.

Cost reduction projects frequently result in customer dissatisfaction and

defections.

As pointed out before, these costs are just shifted elsewhere.

Other consequences include decreased product reliability and product lifetime.

Other times, cost or poor quality can lead to increased cost of use and re-work.

A managed quality tracking system is necessary for

assessment of the true cost savings.

Use the Pareto Principle with the quality tracking system

to identify the greatest contributors.

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