Costs of Quality

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Costs of Quality

• David Driskill
• Partner, National Quality Review, NQRI

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NQR/NICSA FINANCIAL SERVICES STUDY

• Conducted annually by National Quality Review
  since 1996.
• Partnership with NICSA since 2004.
• Provides benchmark data related to all areas of
  financial services operations
• Operations
• Telephone Customer Service
• Quality Management
• Expenses
• Staffing
• Training
• 2005 study includes data from 24 companies.

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WHAT IS THE COST OF QUALITY?

• Cost of Quality1 the cost of ensuring that the
  job is done right the cost of not doing the job
  right.
• Cost of Conformance Cost of Non-Conformance
• (Prevention Appraisal)
  (Internal/External Defects)

1A.V. Feigenbaum, et al. (1950s) at GE, Tom
Peters, Quality is Free (1980)
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COST OF QUALITY
Direct Costs1

• Prevention Costs
• Quality Planning
• Process Evaluation/Improvement
• Quality Improvement Meetings
• Quality Training

• Appraisal Costs
• Source Inspection
• In/End-Process Inspection
• Calibration
• Specialist Cost

• Internal Failure Costs
• Rework/Correction
• Re-Inspection

• External Failure Costs
• Complaint Handling
• Rework/Correction
• Re-Inspection

1A.V. Feigenbaum, et al. (1950s) at GE
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PREVENTION COSTS
Cost of Providing First-Time Quality

• Transfer Agents spend 0.1 basis points (avg) on
  training.1
• CSR New Hire Training 7.5 to 60 days (avg
  25.5) Ongoing Training averages 19.1 days.
• Transaction Associate New Hire Training 4 to 30
  days (avg 15.1) Ongoing Training averages 10.2
  days.
• Retention Rates CSRs 41.4, Processing
  Associates 76.9, Correspondence Associates
  50.0.2
• Call Centers Estimated 16.25 of budgets spent
  on prevention.3
• Compensation Level I Quality Assurance position
  in Financial Services (US) is approximately
  40,000 Level III QA is approximately 60,000.4

1NQR/NICSA Financial Services Industry Study (Dec
2005) 2Ibid 3Proceedings Southeastern One Call
Systems/Spring Meeting (2002), Savannah
GA 4Salary.com (2005)
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NEW HIRE TRAINING
Average Days
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TURNOVER
Percent (Median)
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APPRAISAL COSTS1

• On a per fund complex basis (excluding
  third-party TAs), Quality Control staff equal
  2.8 of total TA staff. This is an average of
  10.9 Quality Control Personnel.
• Thirty-five percent of respondents have a
  separate QC group, 29.4 integrate QC with the
  teams, and 35.3 use a hybrid model.
• Fifty-seven percent of respondents QC 100 of
  financial transactions. Twenty percent QC 100
  of non-financial transactions.
• Respondents monitor between 4 calls and 32 calls
  per month for each CSR the average is 12.6 calls
  per month.

1All data from NQR/NICSA Financial Services
Industry Study (Dec 2005)
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QUALITY CONTROL
Percent Reviewed
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INTERNAL FAILURE COSTS

• Internal failure cost Cost of TA QC Cost of
  Reprocessing1
• 1980s Research Suggested that QC itself
  produced errors in 3 categories (up to14 of
  error rate).2
• Item was right, judged wrong, and corrected
  wrong.
• Item was in error and corrected incorrectly.
• Item was judged as correct, was incorrect, and
  released.
• Added Cost Item judged wrong by QC, found to be
  right, and then released.

1Godfrey, A.B., Cost of Quality Revisited
(2005) Juran Institute Inc. 2Driskill, D.P.,
(1980s) Research Project Client Name Withheld
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EXTERNAL FAILURE COSTS

• External Failure Cost Cost of TA Adjustments
  Department, Shareholder/Intermediary compensation
  (for financial errors), QC, and reprocessing
  costs. (May also include the cost of expedited
  workflow and premium mailing.)1
• Compounding costs2 Adjustments/reprocessing
  (including QC) of external errors has its own
  error rate.
• Small percent of error can escape detection
  altogether Errors uncovered months/years later
  when a shareholder event occurs.

1Godfrey, A.B., Cost of Quality Revisited
(2005) Juran Institute Inc. 2Driskill, D.P.,
(1980s) Research Project Client Name Withheld
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PROCESSING ACCURACY
Percent
Estimated Exception Impact (Average/Fund
Complex)1 92,400 Manual Transaction processed
incorrectly. 24,400 Manual Transactions with
financial exceptions. 1Based on 2004 NQR
data. There has been a significant difference
between NQR Average and Best results since 1994.
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TELEPHONE SERVICE
Rating (1-5 scale)
Estimated Exception Impact (Average/Fund
Complex)1 76,900 Telephone Calls with
inaccurate/incomplete information. 1Based on
2004 NQR data.
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BEST PRACTICES
People
Process
Technology

• Congruence
• Continuous Process monitoring and analysis to
  understand and act on optimization and automation
  opportunities
• Recognize that some process/sub-process will
  remain manual and must be optimized via simple
  things like matching source to screen input
  sequence
• Best in Class TA providers CSR new hire
  training process is on average 7 days longer
  than others1
• Outsource (internal/ external) manufactured
  service.

• Congruence1
• Investment in employee and management development
  spanning years (not quarters)
• Performance Report Distribution/ Feedback to
  staff
• Quality Meetings/ Quality Incentives/Mentoring
• Continuity of primary contact or replacement of
  person by appropriate/ competent hand-offs
• Relationship management that includes proactive
  contact, research, education - applied to global
  issues

• Congruence
• Systematic migration/ maturity from optimized
  process, to exception based technology to STP
• Interoperability of systems on the provider and
  the client side
• Best in class TA providers have and use system
  based quality tools (e.g. AWD, SPC, Data Base
  programs)1
• Web access and/or provider portals allow the
  user to access and use information and data the
  way they want.

1Congruence The extent to which organizational
action matches expressed strategy. While no
organization is 100 (top to bottom) congruent,
the best organizations are more congruent than
less effective organizations.
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BEST PRACTICES
Utilizing
Category
100 50 33 17

• Quality/Analysis Tools
• Spreadsheets/Basic Charts/Database Tools
• SPC/Pareto/Fishbone
• System-Based Tools

100 67 33

• Regular Meetings to discuss Quality
• Associates
• Management/Supervisors

100 100 83

• Feedback
• Ongoing One-on-One Meetings to Discuss
  Performance
• Error Correction

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Dedicated Quality Team
83 83 83 67

• Incentive/Recognition Programs
• Monetary
• Non-Monetary
• Linked to Quality

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Certification Process