LESSON - Reversing the High Costs of Poor Quality Information
By Larry P. English, Information Impact International
What is the best way to get out of the financial crisis most organizations are in today? Lay off staff? File for bankruptcy? The answer is neither.
The best course of action is to eliminate the costs and wastes of process failure and information scrap and rework 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 accurately measure and demonstrate the costs of poor quality information to your executive leadership team (ELT) in a way that cannot be rejected.
Chapter 6 in my new book, Information Quality Applied: Best Practices for Business Information, Processes, and Systems
, describes an easy-to-follow, step-by-step approach on how to measure the costs of process failure and information scrap and rework (IS&R) that will get the attention of your ELT.
The short list of steps is as follows:
- Identify 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.
- 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.
- Document the official costs of people time and other resources that are wasted in process failure and IS&R developed by the financial department.
- 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.
- 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. Measure the attrition of customers with IQ problems. Calculate the lost customer lifetime value over the official lifetime of relationships with customers.
- 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.
Chapter 6 in my book documents tips and techniques to give you an accurate measurement of the true costs of poor quality information, and chapter 7 describes how you can eliminate the costs of poor quality by identifying the root causes of broken information processes to discover improvements to prevent recurrence of the defects.
Measuring the ROI of Information Process Improvements
Once you have done this, follow process P3.7 in chapter 6 to measure the return on investment (ROI) of the information process improvements. If you follow these simple step-by-step guidelines, you will get the attention of your ELT to begin the culture transformation to a high-IQ enterprise that will become world class!
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