Integra:ng the Cost of Quality into Laboratory Opera:ons BIO- RAD LABORATORIES QUALITY SYSTEMS DIVISION
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1 Integra:ng the Cost of Quality into Laboratory Opera:ons BIORAD LABORATORIES QUALITY SYSTEMS DIVISION
2 Anne T. Daley Daley Consul,ng, LLC Mesa, AZ INCORPORATING THE COST OF QUALITY INTO BUDGET DISCUSSIONS
3 Learning Objec:ves By the end of webinar, you will be able to: Iden:fy types of quality costs in the laboratory s budget and use this informa:on to jus:fy needs to administra:on. Apply quality cost concepts to your laboratory s opera:ons.
4 How do I iden*fy different types of quality costs in my budget?
5 CalculaGng PrevenGon Costs Iden:fy current preven:on ac:vi:es within laboratory. Iden:fy staff that par:cipate in the preven:on ac:vi:es and es,mate the labor cost, if possible, categorized by ac:vity. Review budget expenditures to iden:fy and es,mate nonlabor preven:on costs, if possible, categorize by ac:vity. Add together the labor and nonlabor costs to determine the es,mated total preven:on costs. PrevenGon: Cost DescripGon Quality Planning Work Process Training Facility Design Ini:al Competence Assessment Supplier Capability Preven:ve Maintenance Process Valida:on or Verifica:on Quality Management Ac:vi:es Quality Projects Other: Labor Cost NonLabor Cost Total Quality Costs 5
6 CalculaGng Appraisal Costs Iden:fy current appraisal ac:vi:es within laboratory. Iden:fy staff that par:cipate in the appraisal ac:vi:es and es,mate the labor cost, if possible, categorized by ac:vity. Review budget expenditures to iden:fy and es,mate nonlabor appraisal costs, if possible, categorize by ac:vity. Add together the labor and nonlabor costs to determine the es,mated total appraisal costs. Appraisal: Cost DescripGon Surveying Customers and Users Conduc:ng Ongoing Competence Assessment Calibra:ng Measuring Equipment Sample Inspec:ons at Receipt and Examina:on Performing, Reviewing Quality Control Par:cipa:ng in Proficiency Tes:ng Measuring Quality Indicators Conduc:ng Internal Audits Par:cipa:ng in External Laboratory Inspec:ons and Accredita:on Assessments Other: Labor Cost NonLabor Cost Total Quality Costs 6
7 CalculaGng Failure Costs Iden:fy quality indicators, that focus on tracking nonconforming events classify as either internal and external failures Es,mate the average cost by category or indicator for: Labor to handle a single nonconforming event, mul:ply by total volume. Nonlabor, primarily supplies and reagents used to repeat the ac:vity, mul:ply by total volume. Add together the labor and nonlabor costs to determine the es,mated total failure costs Cost DescripGon Failure Internal: Sample Problems in the Preexamina:on Phase Insufficient or Expired Reagents or Supplies Rework, Repair, Retes:ng, Reinspec:on Wasted Blood and Blood Components Down:me Other: Failure External: Lost Reports Repor:ng Errors Customer Complaints Misdiagnoses Lawsuits Other: Labor Cost NonLabor Cost Total Quality Costs 7
8 Calcula:ng Total Quality Costs Add together the following labor and nonlabor costs: Preven:on Appraisal Failure Internal Failure External Cost DescripGon PrevenGon: Appraisal: Failure Internal: Failure External: Total Quality Costs Labor Cost NonLabor Cost Total Quality Costs CAUTION: Keep the calcula:on method as simple as possible in order to be sustainable! 8
9 Calcula:ng SP Staffing Costs Job Title / Employee ID # Total FTEs Total Hours per Year Hourly Rate Prevention % of Time Prevention Cost Appraisal % of Time Appraisal Cost Other % of Time Prevention & Appraisal Cost Manager 1.0 2, % 43,992 10% 7,332 30% 51,324 Coordinator 3.0 6, % 24,523 20% 24,523 60% 49,046 Specimen Processor Level III , % 38,563 30% 115,690 60% 154,253 Specimen Processor Level II , % 4,776 30% 71,635 68% 76,411 Specimen Processor Level I 1.0 2, % % 8,393 68% 8,952 Total Prevention and Appraisal Costs 112, , ,986 Total Specimen Processing Labor Expense 1,450,000 % Quality Costs to Total Labor Expense 8% 16% 23% 23% of Specimen Processing labor cost is for preven:on and appraisal ac:vi:es. 9
10 Specimen Processing: Pulling it all Together Preven:on and appraisal costs was 23% of total SP sec:on expense. Analyzing by cost type: 8% preven:on 15% appraisal Analyzing by labor or nonlabor: 23% labor <1% nonlabor Cost Description Annualized Volume Labor Cost per Unit Total Labor Cost NonLabor Cost per Unit Total Non Labor Cost Total Quality Costs Prevention: 112,414 5, ,414 Quality Planning Work Process Training Initial Competence Assessment Preventive Maintenance 5,000 5,000 Process Validation or Verification Quality Projects Appraisal: 227, ,573 Conducting Ongoing Competence Assessment Sample Inspections at Receipt and Examination Measuring Quality Indicators Conducting Internal Audits Participating in External Laboratory Inspections and Accreditation Assessments Primary Activity Failure Internal and External: 27, ,672 ID/Specimen Mismatch , ,305 Incomplete, No Label Bad ID, Mislabeled , ,547 Incorrect Requisition Incorrect Specimen Illegible Label , ,137 Incorrect Test Wrong Patient Total Quality Costs 367,975 5, ,659 10
11 Calcula:ng Core Lab Staffing Costs Job Title / Employee ID # Total FTEs Total Hours per Year Hourly Rate Prevention % of Time Prevention Cost Appraisal % of Time Appraisal Cost Other % of Time Prevention & Appraisal Cost Manager 1.0 2, % 39,936 10% 6,656 30% 46,592 Technical Supervisor 1.0 2, % 11,648 30% 17,472 50% 29,120 Testing Personnel Level III 3.0 6, % 7,176 15% 21,528 80% 28,704 Testing Personnel Level II , % 11,232 10% 56,160 83% 67,392 Testing Personnel Level I , % 3,120 5% 7,800 93% 10,920 Quality Specialist 1.0 2, % 15,600 50% 26,000 20% 41,600 Total Prevention and Appraisal Costs 88, , ,328 Total Core Lab Section Labor Expense 3,650,000 % Quality Costs to Total Labor Expense 2% 4% 6% 6% Core Lab labor cost was for preven:on and appraisal ac:vi:es compared to 23% in Specimen Processing. 11
12 Core Lab Preven:on and Appraisal Costs Preven:on and appraisal costs was 8% of total Core Lab sec:on expense. Analyzing by cost type: 5% preven:on 3% appraisal Analyzing by labor or nonlabor: 3% labor 5% nonlabor Cost Description Labor Cost NonLabor Cost Total Quality Costs Prevention: 88, , ,712 Quality Planning Work Process Training Initial Competence Assessment Supplier Capability Preventive Maintenance 245, ,000 Process Validation or Verification 30,000 30,000 Quality Management Activities Quality Projects Appraisal: 135, , ,616 Conducting Ongoing Competence Assessment Calibrating Measuring Equipment 2,000 2,000 Sample Inspections at Receipt and Examination Performing, Reviewing Quality Control 70,000 70,000 Participating in Proficiency Testing 32,000 32,000 Measuring Quality Indicators Conducting Internal Audits Participating in External Laboratory Inspections and Accreditation Assessments 10,000 10,000 Total Prevention & Appraisal Quality Costs 224, , ,328 Percentage of Total Core Lab section 7.65M Operating Expense (Labor + NonLabor) 3% 5% 8% NOTE: Estimated total section expense is 7,650,000 with 68% labor (3,650,000) and 52% nonlabor (4,000,000). Numbers have been modified and do not reflect one specific laboratory. 12
13 How do I use cost of quality informa*on with administra*on?
14 Polling QuesGon Have you ever had a discussion with your administrator regarding the posi:ve and nega:ve impact of the three types of quality costs on your budget?
15 Another ques:on for you
16 Quality Report with Failure Costs Preexamination Quality Management System Laboratory Summary Report Month1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Mo. Average Threshold YTD Failure Total Cost Total # of Blood Recollects Estimated Failure Cost (average is 27/recollect) Examination Total # of Failed Instrument Runs Estimated Failure Cost (average is 400/failed run) Post Examination 4,428 4,725 5,373 5,103 4,158 4,185 4,347 3,618 3,213 4,671 5,454 6,858 56, ,800 10,800 8,000 6,400 7,600 7,200 6,400 7,600 7,200 4,400 3,200 3,600 85,200 Total # of Corrected Reports Estimated Failure Cost (average is 25/corrected Report) 3,000 1,700 1,725 2,150 2,500 1,800 1,000 1,475 2,500 1,650 1,425 1,475 22,400 Failure Total Costs 20,228 17,225 15,098 13,653 14,258 13,185 11,747 12,693 12,913 10,721 10,079 11,933 13, ,733 NOTE: The spreadsheet provided does not contain actual data and thresholds; data were modified for example purposes. Highlighted data indicates unacceptable performance (yellow), 12month average (blue), the associated threshold (purple), and the total failure costs (orange). 163,733 was spent last year on failure costs of three quality indicators, or an average wasted monthly expense of 13,644!
17 Communica:ng Quality Costs Factors to consider: What quality costs need to be measured? Who needs to know? How onen? What level of detail? How will the report be used what is the expected response? Keep it simple and integrate! 17
18 What Do Administrators Want to Hear? How a quality program is aligned with financial priori:es: Metricsdriven Produc:vity Cost accoun:ng standards Pa:ent failures could have a significant impact on market share General ledger Alignment and Support from Opera:ons Metrics SupporGng Program Requests 18
19 How do I apply quality cost concepts to my opera*on?
20 How Should Quality Costs Be Used? To iden:fy and priori:ze improvement opportuni:es. To track progress of improvement ini:a:ves. To iden:fy and communicate preven:on and appraisal costs that could impact quality if reduced. To quan:fy the financial impact of process failures to an opera:ng budget. 20
21 Quality is free. It is not a gin, but it is free. What costs money are the unquality things all the ac:ons that involve not doing jobs right the first :me. Philip Crosby
22 BIORAD LABORATORIES QUALITY SYSTEMS DIVISION
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