Most agree that improving products or process reliability is a good thing. It’s good for customers, factories, and our business.
And, sometimes it’s difficult to answer the question,
What is the value of that reliability activity?
Years ago my boss asked me what value I provided the organization. Working as a reliability professional, I thought that my value was obvious. He asked me to show the value.
It was harder than I thought.
With his help and many others, here’s a list of ways to uncover the value in your reliability program. You can use this as a way to show potential value for future projects or to capture and record value from past activities.
Either way, I’ve found this list a great way to think about what I’m planning and doing, so I’m focused on adding value to my organization through reliability engineering.
1. Cost Reduction
This should be rather straight forward to calculate.
Although many consider only the cost of components for cost reduction. This often increases failure rates and the costs of failures.
So, consider reliability improvements and the change in expected failure rate for the cost reduction element. Yes, you may need to increase component costs to improve reliability. do so if the improved reliability reduces the cost of failures.
Another way to consider the cost reduction is to accomplish design or process faults earlier in the lifecycle.
The basic idea is something I learned about years ago (currently looking for updated studies and reports) that the cost of resolving a design issue increases 10-fold per stage along the lifecycle.
If it would cost the design team $100 to resolve an issue in the concept phase, it may cost $10,000 to resolve in the production phase (two stages later).
Therefore, if the reliability work assists in finding and fixing issues earlier than later, you are avoiding the costs of fixing the same issue later.
Cloud, Giffen, Larson, and Swan, “Designing Cost-Effective Space Missions: An Integrated, Systems Engineering Approach,” Teaching Science and Technology, Inc., 1999.
2. Warranty Reduction
Another obvious benefit of improving product reliability. By reducing the failures that customers experience the fewer warranty claims will occur.
For your product or system, gather the cost of warranty or the cost of failures and divide by the number of failures (warranty claims) experienced to find the cost per failure.
If you avoid 10 future failures then that is a saving of 10 times the cost per failure.
Another way to track and claim your warranty impact is to divide the cost of warranty by the total number of products sold. This provides the cost of warranty per unit sold. The same cost basis as the costing for individual components.
For production equipment divide by days to get a cost of repair (downtime) per day. Again, we often work with the concept of cost per day to operate the plant. Or, if you work with cost per unit produced, again divide by the number of units.
3. Risk Reduction
Risk is uncertainty.
Will the product perform as expected? Will the equipment have the rated capacity? Have we missed any major faults? How will the customers actually use this device?
And, for any product in design, there are many other unknowns that provide risk.
We can quantify risk.
Does the reliability work mitigate or reduce field related problems?
If so, estimate the probable cost of the field problem in dollars. (i.e. units affected x repair cost)
Has the probability of field related problems been reduced?
If so, give an estimate by how much- the cost of a cost avoidance. (i.e. estimate 1000 units per month with $50 cost per failure with reduced risk of 5% leads to a value of $2,500 per month.)
Time to Market Impact
If an organizational objective is related to time to market, then there may be a substantial value in minimizing risks to the development timeline.
A common way to delay a program launch is to find major reliability issues late in the process. Identifying issues earlier provides less expensive means to resolve the issue, and reduces the risk of delaying the program.
To find the value consider this thought process:
Did work identify any problems with potential impact to time to market (TTM)?
Has the use of tools or techniques identified issues which may impact TTM?
If the above apply, identify the types of problems and estimate TTM impact.
What is the estimated cost of delay in TTM?
What is the opportunity in dollars of additional income from an early TTM?
Another factor to consider is the additional cost of engineering or development teams during the extended or reduced TTM.
Time to Volume Impact
Related to time to market is time to volume. For high volume products, the ramp to production levels may be an important element of the business plan.
When there are unknowns or major risks, the ramp of product may slow to minimize the risk.
By minimizing the risk to production (increasing confidence that production is making good products) the ability of the team to ship adequate numbers of units for additional markets increases the impact of initial product offering marketing.
Did the work help the team accelerate or meet your time to volume (TTV) goals?
If applicable what is the estimated dollar impact of avoiding the TTV issues that were resolved?
Material Cost Reduction
This involves the cost of yield loss during production, the cost of scrapping bad batches of incoming or outgoing material, and the cost of recalls.
Also, consider the cost of prototypes or testing materials.
Did we avoid or save any direct product material or test equipment costs?
For example, did an FMEA study identify and resolve a failure mechanism that would otherwise require an accelerated life test (ALT) to estimate field failure rates? If so, the FMEA created the value of avoiding the cost of the ALT test equipment and samples.
Customer Satisfaction Improvement
For many products, there is a relationship between customer satisfaction and product reliability. Satisfied customers buy more products and encourage others to do so. Dissatisfied customers do not buy products and may discourage other from buying.
Another source of value is if the product reliability is improved customer call centers and repair centers do not need as large a staff or facilities. Some organizations identify the cost per customer call, which permits the estimation of the value of a change in call rates.
Consider if the reliability work impacts customer satisfaction and if so, to what extent. For example, how many customer calls would be avoided.
If you have the model of the customer satisfaction to sales, you can estimate the impact on sales volume.
Often the revenue value is significant. Yes, getting good number and models for these estimates are difficult to create. And they are well worth the effort to develop.
Reduce Opportunity Costs
Every engineer and manager on a development team has multiple priorities and tasks to accomplish. If someone or a team is diverted to accomplish a reliability task, they are not doing their primary role.
If the accomplishment of a task is automated, streamlines, out-sourced effectively, it reduces the lost opportunity for engineering tasks to be accomplished.
One easy example is the cost of extending the program development time and the cost per day of the development team. If a reliability activity can reduce the time of the extension, it saves the opportunity cost. Those engineers can then work on the next project as planned.
This one is more difficult to quantify, yet worth considering.
Did the reliability activity increase the efficiency of the team?
Did the activities bring previously unknown knowledge to the program?
Did the work improve the team’s ability to make decisions with fewer errors?
Engineering Effort Saved
This worked well for me once. I was asked to research and resolve a cracked capacitor issue. It took me (or most any engineer) about two weeks to conduct the research and resolve the issue.
The value was in part just in that engineering work, yet the additional and significant value for the organization was in the reuse of that two weeks of work. Over the next 3 months, we quickly resolved 12 other similar situations. Saving about two weeks each time.
Estimate the cost of an engineer per day, times two weeks, times 12, resulted in approximately saving half a man year of engineering time.
This savings was in addition to avoided material costs, field failure costs, and impact to TTM or impact to customer satisfaction.
And, in your organization and market, you may be able to identify other meaningful sources of value.
It takes practice, yet over time you will naturally look for and quantify value for each of your reliability related activities. As you do so, you will be able to clearly estimate the return on investment for proposed tasks and track and qualify value created as a result of specific tasks.
In a large part, it’s learning to talk as your management team does about investments, opportunities, and profits. Do so increases your influence within an organization and improves the product reliability for your customers.