The Cost of Quality
Insurance Experts' Forum, February 18, 2010
As I write this, near-term predictions are multiplying for improvement in leading indicators; however, the pressure on cost containment remains strong. How should quality play into this cost reduction discussion? That question is likely to evoke strong opinions.
A discussion of cost of quality is best divided into two domains. One is the cost of good quality (prevention and detection), and the other is the cost of poor quality (recovery from failure detected internally and externally). We will focus on diagnosis and prevention, whether detected internally or externally.
In the last 18 months, have you adjusted or changed how you manage quality? For many, the answer is yes, and often the change is unintended or not fully directed. Taking a broad view—be it in underwriting, claims, or support functions—we can easily predict that there is more stress and uncertainty in your processes today than 18 months ago. This can come from staffing change, reduction in overtime, process change, or your employees’ stress levels. These factors can drive variance or poor quality, making the answer: “Yes, there is greater risk today.” There is also risk from sabotage, which typically increases in times of higher stress and dissonance from leadership.
Very often, as cuts in the production workforce are made, line supervisors rely heavily on the QC or QA areas to maintain quality. This is a difficult situation; one with no easy solution. Do you get the carryover down (or down faster) by reducing or stopping quality checks, or should quality checks continue as planned?
Here are some things to consider if you find that cost cuts force you to choose between production and quality:
How stable has your quality been over the long term?
Are there parts of your organization that are stable, confirmed by consistent quality checks?
How is your team’s morale?
Do you have clear procedures and understood workflows?
How sensitive is your organization to having errors found by others within the organization?
How sensitive are you to losing customers due to lower quality or mishandling?
Is quality your primary business requirement?
As you consider these questions, think about the options:
Go to a lower confidence level; reduce sample size.
Temporarily move to targeted selection from random.
Reduce the depth of the quality reviews.
Maintain the program with only slight focus changes.
While there is no easy rule to follow, today quality is clearly a bigger factor than it was only a few years ago. So maintaining control over quality should be your strategic objective. That means that any adjustments your company makes should not undermine your ability to consistently deliver service at your organization’s goal quality level.
CLAY RICORD is a Senior Consultant for the Robert E. Nolan Company, a management consulting firm specializing in the insurance industry.
Readers are encouraged to respond to Clay using the “Add Your Comments” box below. He can also be reached at Clay_Ricord@renolan.com
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