Value Creation

“A system must have an aim. A system must create something of value, in other words results”. W. Edwards Deming

Organizations can ‘create value’ by targeting internal constraints, focused on product & process improvement initiatives, measured in the form of Cost of Poor Quality (COPQ). Improving COPQ provides a return on the money invested (ROI), thus creating value. Improvement initiatives, however, require an investment of precious resources in the form of time, people and money. 

Time is the resource that is automatically spent, and we never get it back. Time marches on, with or without action. Time represents opportunity in terms of value realized or lost.

People make it all happen when they possess the proper skillset, training and competency to understand what they are doing, and to ‘do it’ effectively and efficiently. This is applicable to people in functional roles such as executive leadership, program or project managers, and the process owners who are expected to get the job done.

Money is only useful if it is not wasted. Money can be well spent on improvement initiatives, measured in the form of reduction in COPQ, providing a return on the money invested (ROI). This creates value in the form of less waste, more money, allowing for additional and ongoing investment in performance improvement.

None of these resources, however, can be utilized to create value if the organization does not possess the baseline information necessary to effectively identify the appropriate opportunity for product or process improvement, yielding the greatest ROI. Information provides an opportunity for alignment. Alignment provides an opportunity to focus. Focus provides an opportunity to plan for speed in project execution. Speed in project execution enables the timely realization of value in the form of ROI.

The baseline information required to create the greatest value is the knowledge of the product or process constraint(s) that cost the organization the most, measured as COPQ. The highest COPQ values provide the most opportunity for improvement. COPQ is identified through the ongoing process of performance measurement. 

Once identified, the appropriate resources can be utilized to improve the COPQ constraint that is limiting the results (value) of the quality of the organizations’ products and processes.

Larry MagerMgmt-Ctrl