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Reversing the High Costs of Poor Quality Information

Originally published February 18, 2010

What is the best way to get out of the financial crisis most organizations are in today? Laying off staff? Filing for bankruptcy? The answer is neither.

The best course of action is to eliminate the costs and waste of process failure and information scrap and rework (IS&R) caused by broken information processes. World-class organizations are eliminating these costs and wastes as a regular part of their routine.

Some organizations do not know how to measure and quantify the costs of poor quality information – but now there is help.

Measuring the Costs of Poor Quality Information

To develop the business case for “Investing in Information – Not Data – Quality Management,” you must be able to measure and demonstrate accurately the costs of poor quality information to your executive leadership team (ELT) in a way that cannot be rejected. Without understanding the costs of poor quality information, executives can only guess at how they can eliminate the costs of poor quality information.

Chapter 6 in my new book, Information Quality Applied: Best Practices for Business Information, Processes and Systems, describes in an easy to follow step-by-step approach to measure the costs of process failure and information scrap and rework that will get the attention of your executive leadership team.

The short list of steps is as follows:
  1. Identify the key business performance indicators that your executives watch to measure enterprise success. You must understand what they deem important to success. These include: mission accomplishment, increased profits, reduced costs, reduced cycle time, increased customer and employee satisfaction and increased productivity. Beware that some key indicators, such as excess bonuses or speed of delivery over quality, cause defective information.

  2. Document critical business processes that have high failure rates and costs of recovery. Measure the costs of various processes and estimate the percent of all total processes.

  3. Document the official costs of people time and other resources that are wasted in process failure and IS&R developed by the financial department.

  4. Measure and calculate the direct costs of poor quality as a result of this failure. Use a time-and-materials cost worksheet and have employees measure the amount of time in recovering from process failure, workarounds and IS&R.

  5. Measure opportunity costs (missed and lost opportunity) if you know your current customer lifetime value (CLTV). Define CLTV if not. Analyze customer complaints by percent of complaints with IQ problems as a part of the complaint. Measure the attrition of customers with IQ problems. Calculate the lost customer lifetime value over the official lifetime of relationships with customers.

  6. Once you have values for direct and opportunity costs, calculate the overall costs of poor information quality.
Note: Always use the official costing figures from finance and any procedures for estimating figures of waste not directly measured.

Improving Information Process Quality to Prevent Defect Recurrence

Chapter 7 in my new book describes how you can eliminate the costs of poor quality by identifying the root causes of broken information processes and identifying improvements to prevent recurrence of the defects.

Measuring the Return on Investment of Information Process Improvements

Once you have done this, follow process P3.7 in Chapter 6 to measure the return on investment of the information process improvements.

If you follow these simple step-by-step guidelines, you will get the attention of your executive leadership team to begin the culture transformation to a high IQ enterprise that will become world class!

  • Larry EnglishLarry English

    Larry, President and Principal of INFORMATION IMPACT International Inc., is one of the most highly respected authorities in the world on how to apply information quality management principles to Total Information Quality Management. He has provided consulting and education in more than 40 countries on six continents. 

    Larry was featured as one of the “21 Voices for the 21st Century” in the American Society for Quality’s Journal Quality Progress in its January 2000 issue. Heartbeat of America, hosted by William Shatner, awarded him the “Keeping America Strong” award in December 2008 honoring his work in helping organizations eliminate the high costs of business process failure that enable them to eliminate the high costs of business process failure caused by poor quality information. Larry was honored by the MIT Information Quality Program for a Decade of Outstanding Contributions to the field of Information Quality Management in July 2009. You may contact him by email at Larry.English@infoimpact.com.


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