How The COPQ Helps Your Healthcare Quality Project

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Challenging To Demonstrate The Business Case For Your Healthcare Quality Project

One of the biggest challenges with quality improvement projects is clearly demonstrating the business case that drives them.  It can be very useful to generate an estimated amount of costs recovered by improving quality.  One of the useful tools in Lean and Six Sigma to achieve this is entitled ‘The cost of poor quality’ or COPQ.  Here we will discuss the cost of poor quality and some ways you can use it in your next quality improvement project.


Use The COPQ To Make The Case, And Here’s Why

The COPQ helps form a portion of the business case for the quality improvement project you are performing.  Usually, the COPQ is positioned prominently in the project charter.  It may sit after the problem statement or in another location depending on the template you are using.  Of the many tools of Six Sigma, most black belts do employ a project charter as part of their DMAIC project.  For those of you who are new to Six Sigma, DMAIC is the acronym for the steps in a Six Sigma project.  It includes: Define, Measure, Analysis, Improve, and Control.  Importantly, we use these steps routinely and each step has a different objective we must achieve.  These objectives are often called tollgates.  Things must happen in each of these steps before progressing to the next step.  One of the tools we can use, and again most project leaders do use this tool routinely, is called the project charter.


The project charter defines the scope for the problem.  Importantly, it defines the different stakeholders who will participate, and the time line for completion of the project.  It fulfills other important roles too as it clearly lays out the specific problem to be addressed.  Here is where the COPQ comes in:  we utilize the COPQ to give managers, stakeholders, and financial professionals in the organization an estimate of the costs associated with current levels of performance.


The Four Buckets That Compose The COPQ

The COPQ is composed of four ‘buckets’.  These are:  the cost of internal failures, the cost of external failures, the cost of surveillance, and the cost associated with prevention of defects.  Let’s consider each of these as we describe how to determine the Costs of Poor Quality.  The cost of internal failures are those costs associated with problems with the system that do not make it to the customer or end user.  In healthcare this question of who is the customer can be particularly tricky.  For example, do we consider the customer as the patient or as the third party payer?  The reason why this is challenging is that, although we deliver care to the patient, the third party payer is the one who actually pays for the value added.  This can make it very challenging to establish the Costs of Poor Quality for internal and other failures.  I believe, personally, this is one of the sources that puts Lean, Six Sigma, and other business initiatives into certain challenges when we work in the healthcare arena.  Who, exactly, is the customer?  Whoever we regard as the customer, internal failures, again, are those issues that do not make it to the patient, third party payer, or eventual recipient of the output of the process.


External failures, by contrast, are those issues and defects that do make it to the customer of the system. There are often more egregious.  These may be less numerous than internal failures but are often visible, important challenges.


Next is the cost of surveillance.  These are the costs associated with things like intermittent inspections from state accrediting bodies or similar costs that we incur perhaps more frequently because of poor quality.  Perhaps our state regulatory body has to come back yearly instead of every three years because of our quality issues.  This incurs increased costs.


The final bucket is the cost of prevention.  Costs associated with prevention are other important components of the cost of poor quality.  The costs associated with prevention are the only expenditures on which we have a Return On Investment (ROI).  Prevention is perhaps the most important element of the COPQ because money we spend on prevention actually translates into, often, that return on investment.


A Transparent Finance Department Gives Us The Numbers

In order to construct the COPQ we need to have ties to the financial part of our organization.  This is where transparency in the organization is key.  It can be very challenging to get the numbers we require in some organizations and in others it can be very straightforward.  Arming the team with good financial data can help make a stronger case for quality improvement.  It is key, therefore, that each project have a financial stakeholder so that the quality improvement effort never strays too far from a clear idea of the costs associated with the project and the expectation of costs recovered.  Interestingly, in the Villanova University Lean Six Sigma healthcare courses, a common statistic cited is that each Lean and Six Sigma project recovers a median value of approximately $250000.  This is a routine amount of recovery of COPQ even for healthcare projects and beyond.  It can be very striking just how much good quality translates into cost cutting.  In fact, I found that decreasing the variance in systems, outliers and bad outcomes has a substantial impact on costs in just the manner we described.


Conclusion:  COPQ Is Key For Your Healthcare Quality Project

In conclusion, the Cost of Poor Quality is useful construct for your next quality improvement project because it clearly describes exactly what the financial stakeholders can expect to recover from the expenditure of time and effort.  The COPQ is featured prominently in the project charter used by many project leaders in the DMAIC process.  To establish the COPQ we obtain financial data from our colleagues in finance who are part of our project.  We then review the costs statements with them and earmark certain costs as costs of internal failure, external failure, surveillance or costs associated with prevention.  We then use these to determine the staged cost of poor quality.  Additionally, we recognize that the COPQ is often a significant figure on the order of 200-300 thousand dollars for many healthcare-related projects.


We hope that use of the COPQ for your next quality improvement project helps you garner support and have a successful project outcome.  Remember, prevention is the only category of expenditures in the COPQ that has a positive return on investment.


Thought, questions, or discussion points about the COPQ?  Let us know your thoughts beneath.