Suppose you own or manage a burger takeaway. It costs £2 to make each burger, and you sell them for £4.
One day, an unusually busy Saturday afternoon, there is a minor problem with an order for a customer. Outside, the queue is getting longer and the customers growing restless. You have a dilemma. The burger is not a total disaster, you could serve it on, then pray or cross your fingers or touch wood in the hope that they not notice? You could just throw it away and make another one? But you are not sure, and you feel the beady eyes of hungry customers, judgmental. Of course, if one adheres to the adage that the customer is king (or queen!), it’s a no-brainer. But the question is – what goes into your calculation of the risk of serving a ‘suspicious’ burger versus throwing it away and making another? It’s probably less simple than you imagined.
Calculating the Impact
Both options have a cost. But the total cost to your business could be as high as 300% loss per transaction or £4 000 (total monetary cost). That’s not an exaggeration. Here is how you (rather, I) arrive at those figures.
First, let's work out the scenario where you do the right thing and make another burger.
Making burger = £2.
Profit to be made from burger but now lost = £2.
Cost of making second burger = £2.
Cost of time lost making replacement burger, time that could have been used to make another burger (opportunity cost) = £2.
Total cost of getting a quality burger to the customer in the end = £8.
The customer will still pay £4 for the burger. So instead of making £2 profit on the burger, you end up with £4 loss = 300% worse off than if you hadn’t made a poor-quality burger in the first place.
But suppose you try to pull a fast one on the unsuspecting customer and serve them the poor-quality artefact. And unlucky for you, the customer is Mr Fussball (they always are), and he decides never to give you his ‘business’ again and choose instead to satisfy his burger cravings elsewhere? In boring business jargon, you would’ve lost the said fastidious customer’s lifetime value. Let’s suppose Mr/Ms Finicky, had the poor quality burger situation not occurred, was going to buy 2 burgers a week for 20 years. By losing his or her custom, you’d have lost a lifetime value worth a whopping £4 160 assuming £2 profits per burger over 20 years.
Wait; one little mistake can either leave you 300% worse off on a single transaction or lose you a whopping £4 000? That is insane, right?
Yes, it is. But, that is precisely why proactively managing and avoiding errors, even minor ones, really matter.
Poor quality products or services will result in significant internal and external costs. It is therefore imperative that you invest significantly in quality management initiatives to minimise such costs.
But, the most important lesson from the above example (besides that you should never let a fiction writer develop an anecdote if dramatisation is not your cup of tea) is that ‘culture is key.
An effective quality management culture will enable all employees and senior managers to share the same understanding of the implications that underlies every single action. Employees are more likely to be vigilant against all errors because they realise that the impact could be very significant, even for what may seem like minor problems.