Prove Your ROI
One of my friends started a small printing business several years ago. To generate buzz and distinguish his company from larger printers, he used a slogan that parodied an ad campaign popular at the time: “We make money the old-fashioned way. We print it.”
If only it were that easy. Or is it? I suspect many quality professionals don’t realize how their expertise and everyday actions make money for their organizations by contributing—sometimes significantly—to the bottom line.
This issue’s “Back to Basics” column (p. 104) offers one way to show the worth of a quality initiative: Calculate and communicate its return on investment (ROI). This relatively simple yet powerful tool is basic to many executives, especially those who approve expenditures for new initiatives. Learning how to apply it to your work may help you break new ground in improving your organization’s performance.
In a preview from their upcoming book, Quality Makes Money, Pat Townsend and Joan Gebhardt (p. 29) explain a concept called capacity for work, which links quality directly to increased productivity. Applying dollars to it is more complicated than calculating ROI, but the authors demonstrate how even incremental improvements pay off in the long run. Then they highlight these concepts at work in an insurance company, which saved more than $5.4 million after only one year of a new quality initiative.
The company didn’t implement a big new program, such as Six Sigma. Rather, it involved all 800 employees in identifying ways to eliminate waste and save costs—supported by a quality department of only three people.
The popular corporate mantra of making quality everyone’s job—whether it actually happens, as with the insurance company, or is simply a cliché in the annual report—seems to make the skills of quality professionals obsolete. Nothing could be further from the truth. As competitiveness on a global scale becomes a requirement, quality is more essential than ever. It’s just that the job titles and duties of quality professionals are evolving.
In the fall 2004 issue of Quality Management Forum, the newsletter of ASQ’s Quality Management Division, ASQ Fellow and division member Duke Okes commented on challenges for quality professionals: “They have a tendency to talk about the use of quality tools as if the tools or the use of them has inherent value. In fact, the real value is what that use delivers—how it impacts business strategy, how it provides products/services with greater value and how it contributes to financial performance.”
As you use tools like quality function deployment and root cause analysis, learn to use ones like ROI, too. Not only can you justify your projects; you can also prove your worth come raise or bonus time.