Using the Cost of Quality Concept
in Design and Improvement of
Laboratory Processes
Richard Carlson
Fazi Amirahmadi
1
Presentation Objectives
• Explain relationship between cost & quality
• Describe the elements of cost of quality
2
Impact of Lab & Pathology on Healthcare
• 6.8 billion clinical laboratory tests were performed in the
U.S. (2007)
• Generating about $52 billion in revenues
• Only 2.3% of healthcare spending
Laboratory Medicine: A National Status Report. May 2008
3
Impact of Lab & Pathology on Healthcare
• 70% medical decisions influenced by test results
American Clinical Laboratory Association:
http://www.clinical-labs.org/issues/value/index.shtml
• Lab & path quality has high impact on quality and
affordability of patient care.
4
Errors Rates in Lab and Pathology Services
• One estimate – 1 in 330 to 1 in 164 events or
laboratory results
The value of laboratory medicine. ADVANCE for Medical Laboratory Professionals.
http://laboratorian.advanceweb.com/Article/The-Value-of-Laboratory-Medicine-4.aspx.
• Converts to 3,030 to 6,098 Defects per Million
Opportunities (DPMO)
> Assuming 1 defect opportunity / unit of test
5
Six Sigma
Sigma
6 sigma
5 sigma
4 sigma
3 sigma
2 sigma
1 sigma
DPMO
3.4
233
6,210
66,807
308,537
690,000
Cost as % of
Sales
<10
10 - 15
15 – 20
20 – 30
30 - 40
World class
Industry average
Noncompetitive
6
Three Phases of End-to-End Testing Process
Pre-analytic steps
Clinical question
Test selected
Test ordered
Specimen collected
Analytic steps
Sample prepared
Analysis performed
Results verified
Post-analytic steps
Result reported
Clinical answer
Action taken
Effect on patient care
70
61.9
Carraro P., Plebani M. Errors in a stat laboratory: types and frequencies 10 years later. Clin Chem 2007; 53:7 1338–1342
60
50
40
Distribution of errors (%)
30
20
23.1
15
10
0
7
Value Stream Map of Testing Process
8
Outcome-oriented Process Management
• “Make sure we send a good result out the door.”
• Detect defects before they reach the customer
> Add inspections or quality checks
> Instruct staff to “be more careful”
9
Hidden Laboratories
Hidden Laboratories
(cost centers)
Hidden Laboratories
(cost centers)
10
Cost per Unit of Product or Service =
Cost of Error/Waste-free Product/Service
+ Cost of Quality
11
What is Quality?
• Conformance to requirements
> defined by the customer
> first time at each step in the value stream
> deliverable that is free of deficiencies
• Error-free, Waste-free
12
Cost of Quality
• Two main components:
> The cost of attaining quality
(or the cost of conformance)
> The cost of poor quality
(or the cost of non-conformance)
13
Cost of Product or Service
NonConformance
Cost
Error Free
Cost
Conformance
Cost
14
Cost of Attaining Quality
(or the cost of conformance)
• Prevention Costs
• Appraisal Costs
15
Cost of Attaining Quality
(or the cost of conformance)
• Examples
• Prevention Costs
Costs of all activities that
> Planning for quality
are designed to prevent
> Design and review of a new
service or test
poor quality from arising in
> Mistake/error proofing
products or services
> Quality improvement team
meetings
> Quality education and
training
> Supplier evaluation
16
Cost of Attaining Quality
(or the cost of conformance)
• Appraisal Costs
• Examples
Costs that occur because
> Checking & testing
purchased supplies &
of the need to control
services
products and services to
>
In-process and final
ensure:
> a high quality level in all
stages
> conformance to quality
standards
> performance requirements
are met
inspections/checking
> Product, process or service
audits
> Calibration of measuring and
test equipment
> Validation of instruments
17
Cost of Poor Quality
(or the cost of non-conformance)
• Internal Failure Costs
• External Failure Costs
18
Cost of Poor Quality
(or the cost of non-conformance)
• Examples
• Internal Failure Costs
> Incoming defects
Caused by products or
> Repeat testing
services not conforming to
> Lost specimens
customer requirements
> Poor staff scheduling
and found before delivery
> Instrument downtime
to external customers
>
>
>
>
>
High inventory cost
Sample mix-up
Data entry error
Specimen Recollection
Long turnaround time
19
Cost of Poor Quality
(or the cost of non-conformance)
• Examples
• External Failure Costs
Caused by deficiencies
> Revised reports
found after delivery to
> Redoing services/tests
external customers
> Complaints
> Loss of revenue due to
unhappy clients/patients
> Financial loss because of
lawsuits
> Environmental costs
20
Eight types of waste
• Poor quality costs result from all waste.
> Failure to meet customer requirements
• Waiting, transportation, over-processing,
inventory, motions (movement), defects,
overproduction, and mis-utilization of skills,
knowledge, creativity, and experience.
21
Cost of Product or Service
External
Failure
Cost
NonConformance
Costs
Error Free
Cost
Internal
Failure
Cost
Conformance
Costs
Appraisal
Cost
Prevention
Cost
22
Quality Iceberg
23
Relationship Between Cost and Quality
24
Common Assumption
• Improved quality requires additional resources
> Reduced re-work should save resources
> Adherence to standards should decrease variation and
save costs
> New technology may require additional resources
> Increased resources do not guarantee improved quality
25
Traditional Thinking
• Prevention & Appraisal
> Used to catch and reduce % of defective units
> Internal & External costs will be reduced.
• Focus is on Appraisal
26
Traditional Thinking
Cost of good unit
al
rn
te
Ex t s
& Cos
al
rn re
te ilu
In Fa
Prevention & Appraisal
Costs
• To catch all defects, cost
of good unit approaches
infinity (very high cost)
27
Lean Thinking
• Emphasis on prevention
• Therefore the cost of good
unit reaches its limit at
Error Proofed stage.
Cost of good unit =
Cost of Error free & Waste free unit +
Prevention & Appraisal Costs +
Internal & External Failure Costs
In
al
rn
te
E x ts
& Cos
al
rn re
te ailu
F
tion Cos
Preven
Prevention Costs =
Cost of Mistakeproofing the value
stream
ts
Cost of error & waste
free unit
100% of units
defective
Quality Level of Outcome
0% of units
defective
Lean Thinking
28
Cost of Quality
Four components:
• Prevention Costs
• Appraisal Costs
• Internal Failure Costs
• External Failure Costs
}
•
High Quality
High Cost of Appraisal & Internal Failure
• We need emphasis on prevention
“An ounce of prevention is worth a pound of cure.”
— Benjamin Franklin
29
Mistake-Proofing Principles
BEST!
Prevention of Errors
Immediate Signaling &
Correction of Errors
Containment of Defects
30
Designing Quality at the Source
• Mistake (error) proofing at source of root cause
• Source Inspection
> Assure quality of deliverable passed to next workstation
is acceptable.
— Provide means to perform inspection
— Visual examples of standards
— Document requirements for quality
31
Cost of a Good Unit
External Failure Costs
Internal Failure Costs
Appraisal Costs
Prevention Costs
Waste Costs
Error / Waste-free Unit Cost
Outcome-Oriented
(Traditional) Thinking
Transition Phase
Lean Thinking (State of
Perfection)
32
“Quality means doing it right
when no one is looking.”
Henry Ford
33
Key Success Factors
• Ensure linkage to business performance
• Use for decision making
> Justify business performance improvement
• The point is to drive change
> A behavior modification tool
• Balances outcome measures with internal
process and financial measures
34
Conclusion
• Reducing the cost of poor quality is one of the best ways
to reduce expenses
• Aligns quality with financial goals
• Enables prioritization and measurement of improvement
• Promotes the effective use of resources
• Makes quality more visible and creates incentives for
doing the job right every time
35
Questions?
36