The document summarizes a presentation about bridging the gap between quality and finance. It discusses how quality professionals and CFOs have similar interests in processes, documentation, audits, and risk management but different focuses. It advocates for management accounting to provide internal cause-and-effect analysis. Examples show how tracking metrics at different stages of new products could improve profits. The presentation also covers quality management system strategies, a process approach, and justifying quality projects to finance using metrics like ROI.

1. © Copyright John Cachat
Bridging the Gap between
Quality and Finance
John M. Cachat, CQE
jmc@peproso.com

2. © Copyright John Cachat
Housekeeping
Phones are muted
Use the question
block for questions Copy of presentation
available upon request

3. © Copyright John Cachat
About John M. Cachat
• Driving Business Performance
– Helping companies align their business and technology
– Focus on people, process, and then the technology
– Subject matter expert on business process management
– On-going research into next generation of technology for enterprise
systems
• 28 years experience in enterprise systems
– USAF Research Project (1985)
– Founder of enterprise quality software company (1988)
– Chair of ASQ technical committee on computerizing quality (1992)
• Trusted advisor to global organizations, government agencies,
and professional groups
http://www.linkedin.com/in/johncachat

4. © Copyright John Cachat
“Quality” in Your Organization
Is it just a cost of doing business?
OR
Is it a competitive advantage?
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5. © Copyright John Cachat
Today’s Discussion
• Quality professionals need a better
understanding of financial terms
and approaches
• CFOs need a better understanding
of Quality terms and approaches
• Everyone needs to learn how to
significantly improve situations
over which they have control
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6. © Copyright John Cachat
Are We That Different?
Finance – SOX, GAAP Quality – ISO, GMP, AS
Documentation Documentation
Training Training
Audits Audits
Risk Management Controls
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7. © Copyright John Cachat
Are We That Different?
Finance Quality
Likes Numbers Likes Numbers
Likes Processes and Audits Likes Processes and Audits
Discusses Cash, Profit, etc. Discusses PPM, CAR, Cpk, etc.
Reports what happened Can explain why it happened
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8. © Copyright John Cachat
The Disconnect
• Finance has been consumed with GAAP and
audited financial statements for external
reporting
• Operations is not happy with standard
financial reports
– Operations ability to understand?
– Financial ability to provide information?
• Great gains can be made from “management
accounting”
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9. © Copyright John Cachat
Management Accounting
• Information for internal business support
• Great gains can be made by Quality and
Accounting working together
• The main focus should be cause and effect
analysis
• What makes this number go up or down?
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10. © Copyright John Cachat
Cause and Effect Example
Increase Profit on New Products
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PEOPLE
MFG PROCESS
EQUIPMENTPRODUCT
DESIGN PROCESS PURC PROCESS
INCREASE
PROFIT ON
NEW PRODUCTS

11. © Copyright John Cachat
Increase Profit on New Products
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INCREASE
PROFIT ON
NEW PRODUCTS
0
20
40
60
80
100
120
Design Proto Pre-Prod Production
Program A
Program B
Number of Engineering Changes by Product Stage

12. © Copyright John Cachat
Increase Profit on New Products
12
Process Capability by Product Stage
0
0.5
1
1.5
2
2.5
3
3.5
4
Design Proto Pre-Prod Production
Program A
Program B
Cpk INCREASE
PROFIT ON
NEW PRODUCTS

13. © Copyright John Cachat
Increase Profit on New Products
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Supplier Changes by Program
0
2
4
6
8
10
12
New Suppliers Suppliers Dropped Same Suppliers
Program A
Program B
INCREASE
PROFIT ON
NEW PRODUCTS

14. © Copyright John Cachat
Cause and Effect Example
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PEOPLE
MFG PROCESS
EQUIPMENTPRODUCT
DESIGN PROCESS PURC PROCESS
INCREASE
MARKET SHARE
INCREASE CUSTOMER
SATISFACTION
REDUCE COST OF
NONCONFORMACE
REDUCE
INVENTORY LEVELS
INCREASE
PRODUCTIVITY

15. © Copyright John Cachat
Strategy & Culture of a
Quality Management System
• Adoption must be a strategic decision and driven by
an understanding that it directly relates to corporate
objectives
• Design and implementation is influenced by:
– Needs
– Objectives
– Products provided
– Processes employed
– Size and structure of the organization
• It is not the intent to imply uniformity in the structure
or uniformity of documentation

16. © Copyright John Cachat
Process Approach
Process Approach
• The application of a system of processes within an
organization, together with the identification and
interactions of these processes and their
management
Advantage of Process Approach
• Provides ongoing control over the linkage between
the individual processes within the system of
processes, as well as their combination and
interaction.

17. © Copyright John Cachat
Model of Process Approach
(How does you management react to a diagram like this?)

18. © Copyright John Cachat
Quality Management System
(Impacting every Department – from Quote to Cash)
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PROJECT MANAGEMENT
New Business Product/Process Validation Risk Management
PEOPLE
Customers Employees Suppliers
DOCUMENTATION
Process Flows/Procedures Product Information Records
EQUIPMENT
Capital Tooling Inspection
MANUFACTURING
Receiving Work Orders, Routers,Inspection Shipping
CONTINUOUS IMPROVEMENT
NCM and CAPA Project Teams Audits

19. © Copyright John Cachat
Should We Use a Business Model?

20. © Copyright John Cachat
Business Model
(Next Level of Detail)

21. © Copyright John Cachat
My Quality Projects
Never Get Funded!
• You are choosing
between several projects
• You have limited money
to invest
• How do you decide
which project to fund?
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22. © Copyright John Cachat
Too Expensive? Compared to What?

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Finance Terms
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• Return on Investment (ROI)
• Net Present Value (NPV)
• Internal Rate of Return (IRR )
• Payback Period

24. © Copyright John Cachat
Cost Justification
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MaterialTimeLabor Increase Revenue

25. © Copyright John Cachat
Quality Costs Model
• Prevention—cost to
prevent mistakes
• Inspection—cost to
find mistakes
• Failure—cost of
mistakes (internal &
external)
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26. © Copyright John Cachat
Cost Justification
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Labor
Prevention
• People that design parts/processes
• People that work with suppliers
• People that define customer expectations
Inspection
• People that check parts
• People that check paperwork
Failure
• People that scrap, rework, repair parts
• People that scrap, rework, repair
paperwork
• People that put out fires

27. © Copyright John Cachat
Cost Justification
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Time Prevention
• Time to design new parts/processes
• Time to process ECRs
• Time to generate reports
Inspection
• Delays in receiving inspection
• Manufacturing waiting on inspection
• Cannot ship until paperwork is done
Failure
• Time to get MRB disposition
• Time to solve problems

28. © Copyright John Cachat
Cost Justification
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Material Failure (Scrap, Rework, Repair)
• Buying incorrect material
• Making to incorrect revision
• ECR makes inventory obsolete
• Downgrades
• MRB inventory sitting around

29. © Copyright John Cachat
Cost Justification
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Increase Revenue
I want to give you this $10M order,
but you are only a $5M company.
I am concerned about the risk of
rapid growth at your company.

30. © Copyright John Cachat
About Us
John Cachat
jmc@peproso.com
Contact
Proven expertise in business
information systems
Rapid Solution
Development™ process
Services
Assess Current Status
Develop Short and Long
Term Plans
Develop Specific Solutions
to Your Problems
Assist in ROI Analysis

31. © Copyright John Cachat
Bridging the Gap between Quality and Finance
&
Contact:
John Cachat
jmc@peproso.com
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