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The Cost of Quality (COQ) business model describes a method of increasing profits without increasing revenues.

Here’s how it works: COQ increases profit by shrinking business costs. If your business has a 5% profit margin, for example – and you decrease costs by 5% – you’ve doubled your profits. That’s simple enough, but how do you decrease costs?

COQ identifies the importance of shrinking costs without taking the usual cost-cutting measures like not buying everyone’s favorite pens or not stocking refreshments in the break room — the “let’s avoid morale buzz-kills to save a few bucks” approach to increasing profit. Instead, COQ promotes lessening mistakes and increasing business process efficiency.

Companies adopt and tweak COQ to reflect their business goals and in turn their profitability. The model applies to not-for-profit businesses too: budgets are tight; grants, revenues, or contributions may not increase, but the same valuable services need to be delivered with less and less money, right?

COQ is made up of three elements: conformance costs, non-conformance costs, and opportunity costs. We’ll explain these before we explain the rest of what the graphic illustrates:

Conformance Costs

  • Communicating
  • Reviewing
  • Reporting
  • Status-Checking
  • Inspecting
  • Training
  • Validating
  • Benchmarking
  • Testing
  • Preventing
  • Planning
  • Preinstalling
  • Checking
  • Auditing
  • Appraising
  • Surveying
  • Evaluating
  • Proofreading

Non-Conformance Costs

  • Fixing
  • Repairing
  • Reworking
  • Retrofitting
  • Revisiting
  • Overstocking
  • Re-doing
  • Referring
  • Reorganizing
  • Scrapping
  • Error
  • Constraint
  • Incorrect
  • Excessive
  • Late

Opportunity Costs

  • Under-utilizing
  • Cancelling
  • Downgrading

Notice these three cost categories are not associated with the cost of producing the output. Materials needed to assemble a product (man hours, supplies, etc) are not included. The three elements merely reflect the costs associated with the business process. As we always say, “the profit’s in the process.” The efficiency of your business processes determines your efficiency as a business. If you’re going to maximize your efficiency and profitability, you need a sound understanding of the cost of quality.

Think about it: process is where value is added and where profit is made. Consumers don’t squeeze oranges to make juice anymore. Okay, maybe on rare occasion, but who cuts down trees and processes timber as a raw material to make paper?

The cost of quality is associated with the cost incurred to ensure process outputs (products and services) meet customer requirements. For example, let’s say Company A manufactures pens, a process that takes ten steps to complete. About half of the time, the process works effectively, and high-quality pens are made. The other half of the time, however, is plagued by faulty manufacturing— lackluster execution in the assembly process. As a result, Company A has to keep half of its pens in its shop for a bit longer for fixing/repairing, incurring non-conformance costs. This leads to a lack of consistency. Ultimately, this waste is passed onto the customer with an increased price per unit and/or inferior product— making it more and more difficult to compete.

That’s why COQ’s biggest cost adjustment occurs in reducing non-conformance costs— tightening the process and ensuring customer requirements are met. This may require spending extra money to do some work over again.

Now, to run through the graphic:

  • Conformance costs are important, and help ensure a business’ success and stability. when optimizing your business, conformance costs should stay the same or in many cases increase.
  • Non-conformance costs, as we’ve mentioned, need to drop significantly— though you can never expect to be without them, strive to get rid of them.
  • Opportunity cost is the value of the next best choice. It’s the “what could have been.” If a business is suffering from non-conformance costs, the “what could have been,” is higher in the left portion of the graphic, where non-conformance costs are much higher. If a business is succeeding financially, there is little “what could have been,” therefore reducing the opportunity cost.
  • Operating costs are constant. They’re the costs of a business’ building, utilities, licenses, etc— which fluctuate, but not enough to factor into this model.
  • Profit looks like this: $$$. Reducing non-conformance generates more $$$.

So, how do you reduce non-conformance? Remember: the $$$’s are in the process.

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Critics of SharePoint often cite the collaborative software’s cost as its biggest deterrent. But is SharePoint really that expensive?

Only if you let it be. WSS SharePoint can be leveraged affordably from a variety of hosting providers. These providers acquire rights to become a SharePoint reseller and provide accessible SharePoint management at a low cost.

Typically, for example, hosted WSS SharePoint services cost $50/month for about 2GB of storage, a relatively low cost that reflects the hosting provider’s markup. Even with the markup, it’s considerably cheaper than purchasing SharePoint directly from Microsoft. Hosting providers offer various bandwidth and server options to fit their clients’ business needs.

We know this because (spoiler alert) we are a SharePoint hosting provider. From our experience implementing SharePoint, we know that how much you choose to benefit from SharePoint is entirely up to you. You control your own destiny, to put it plainly.

When you compare the cost of SharePoint to that of other collaborative software, you’ll probably find SharePoint’s most affordable options to still be expensive in relation to its competitors. Popular startup companies like Basecamp, which charges between $25 and $50/month for portions of SharePoint services, look a lot better on paper than SharePoint itself.

But it’s important to remember what SharePoint provides. It’s practically a kitchen sink for enterprise collaboration! The truth is, non-Microsoft portals can’t provide the same out-of-the-box integration with Microsoft Office. The majority of established businesses run off Microsoft Office anyway, and were built upon it. You just don’t see many businesses other than start-ups using Google Docs and Open Office.

Additionally, employees and executives from these companies communicate through Windows-based software. Chances are many of their business customers/clients still do do. Most employees have spent years in a Windows mindset. Outlook, Excel, Word, Windows Messenger, and Norton Antivirus have been rooted into their thinking. Additionally, business processes have been developed around Microsoft software. Converting to new software would not only require a complete structural adaption, but a thorough adaption of the minds of employees.

SharePoint is not the perfect collaborative software for anyone. There are a number of “under-the-hood” issues to consider. For companies with a large hardware budget, a high-performance Wide Area Network (WAN), and a budget for consulting, SharePoint would be an excellent way to go. For companies with only a modest hardware budget, decent WAN, but other priorities for bandwidth and no consulting budget, other software may be better. It’s necessary to implement a software that’s most efficient for your financial and practical needs.

To conclude, SharePoint is not as expensive as most think. It’s pricey if you let it be. Typically, the companies who complain most about SharePoint’s costs have not used SharePoint to its full capacity. If you explore the idea of purchasing SharePoint from a hosting provider and have the budget to invest in a SharePoint consultant, you can develop a successful long-term foundation for enterprise collaboration.

Would you like more from us? Contact us here.

For Immediate Release

Chattanooga, TN

08/09/2009

Praecipio Consulting’s project management has enabled Chattanooga’s Electric Power Board (EPB) to deliver a new website for their 170,000 customers: EPBFI.com. EPB is en route to providing the first 100 percent fiber-optic Smart Grid in the United States. EPBFI.com provides customers with a dynamic user interface facilitating the ability to enroll in fiber optic services. Praecipio Consulting managed EPB’s progress throughout the project, helping employees navigate through “tech-speak” and leading major, complex integration efforts. The team at Praecipio Consulting built and implemented a Microsoft SharePoint project site to organize and manage the EPBFI.com project. In addition, the SharePoint site also pulls in data from Google Analytics and email marketing tools for viewing and tracking with a goal of ensuring EPB’s Smart Grid success with internal efficiency.

“The Praecipio Consulting team helped me bring a powerful solution to my customers,” EPB Vice President of Corporate Communications Danna Bailey said. “Their project management has greatly improved the efficiency our project.”

Praecipio Consulting is proud to help EPB accomplish their goal of a sustainable, energy-efficient Smart Grid for the greater Chattanooga area. The Smart Grid project is expected to have a positive economic impact on the region.

About Praecipio Consulting

Praecipio Consulting is a management and technology consulting firm with a large focus in IT and IT Operations. Since its founding in 2006, Praecipio Consulting has provided consulting services to a number of clients leveraging leading edge technologies and best practices such as ITIL to enable and align IT service delivery with business strategy. With its strong contingent of consulting backgrounds, Praecipio Consulting has managed to establish itself in the IT Service Management and custom software development consulting market.

For more information, contact Praecipio Consulting, 7301 RR 620 N. Ste. 155-143, Austin, TX 78726; Telephone 512-266-8271; http://praecipio.com.

Collaborative software has hugely expanded business’ abilities to communicate, share knowledge, and organize intellectual property. But which collaborative software is the best for your business?

It depends. Has your business been built on Microsoft Windows, and has it run on Office-based applications for years? In this case, SharePoint is likely best. Do the majority of your clients communicate with you using Basecamp? Adopting Basecamp may be best. Is your business Linux-based? MindQuarry would make the most sense here.

After you’ve studied the different kinds of software available, you can apply these questions:

  • Which software is more efficient for my business’ practical/process needs?
  • Which software is more efficient for my business’ financial needs?
  • Which software is most intuitive to the needs and understanding of my employees (or those who will be using the software)?

These questions make up the tip of the iceberg when it comes to what to consider when choosing which collaborative software to adopt. The complexity of the decision, however, illustrates a great point: you need a collaborative software that’s highly customizable to your unique business needs.

Implementing a collaborative software that requires you to adjust your business operations too much is just not a good idea. Example? Implementing software with an interface/organization that’s considerably different than your current interface will require lots of time to get used to. Employee training sessions will take away from productivity, and frustration over the software’s usability will be inevitable. The adjustment in this scenario takes a long time. It also results in a prolonged loss of productivity.

We’re confident that Microsoft SharePoint, accompanied by our expert implementation tactics, is an excellent solution for your business’ unique needs. From our collective experience interacting with clients who use SharePoint, Basecamp, and a number of other collaboration choices, we’ve discovered SharePoint’s seemingly endless ability to be customized.

Managing enterprise information and processes certainly isn’t a trivial exercise. SharePoint configuration work needs to be well-planned and intricately-designed—it certainly can’t be implemented successfully in an ad-hoc fashion. This is why SharePoint consulting, one of our key services, is such a useful tool for implementation.

At Praecipio Consulting, we recognize the magnitude of implementing collaboration software. It’s a huge decision! We want to use our expertise to help your business do it successfully.

Would you like more from us? Contact us here.

Monitoring, analyzing, and planning ahead are key principles of Business Process Management (BPM), and logically so. Businesses are responsible for their success, and every step of every process they conduct should ideally provide value to both the business and its customers. To assess this, a business must be concerned with Process Value Analysis—a qualitative analysis procedure allowing a business to apply questions to specific process steps to measure their success.

It is best to consider the term “value” in this context as referring to the value a customer expects and is willing to pay for. That value originates from the steps and processes a business performs to create the value—what some call a value chain, meaning every step within a process adds some amount of value to the final product or service.

Again, each step of a process should ideally provide value to both the business and its customers—this is what Process Value Analysis is meant to measure. Obviously this is not always clear-cut, since some steps don’t directly add value to a service but rather facilitate the adding of value. Those steps, though, are considered value-enabling steps—and still, though indirectly, give value to the final product. Non-value-adding steps are steps that have been incorporated into a process for some reason or another, but no longer add any value to the final product by any means. It is these non-value-adding (and money-eating) steps that should be eliminated.

Process Value Analysis is all about asking questions—after all, tough questions typically reveal the most accurate answers. These three categories and accompanying questions are useful for describing the types of value a specific process step may have:

Value added to customers: steps that directly impact customer satisfaction

  • Do customers recognize the value of the process step?
  • Does the step specifically impact the service requirements of its customers?
  • Is the step necessary to meet the timelines and expectations of those served?
  • Are customers willing to pay for this step?

Value added to operations: steps that support the ability to deliver services to the people served

  • Does the step meet legal, health, safety, or environmental regulatory criteria?
  • Is this process step being performed efficiently, or can it be refined?
  • Could this process step be eliminated if a preceding step were performed differently?
  • Could a technology application eliminate or automate this step?
  • Does this process step fulfill an external regulatory requirement?
  • Most importantly, would eliminating this step impact the quality of the service positively or negatively?

Non-value-added: steps that could be eliminated or changed without harming service levels or the organization

  • What specific direct or indirect value does this step have for customers or operations?

Praecipio Consulting collaboratively assesses clients’ needs, priorities, and budget to improve clients’ processes and business operations. A huge part of our service is analyzing our clients’ process value and developing consistent, efficient task-flows to monitor the success of specific process steps. We believe Process Value Analysis is essential for maintaining a competitive advantage in business and dedicate our expertise to enabling our clients to get the greatest value out of their operations.

Would you like more from us? Contact us here.