Return on quality evaluation in a flight firming project

Strategies of quality improvement are the path to lead organization to success, considering both manufacturing or service sector, even though these developments are sometime perceived as in antithesis to traditional profit targets. Starting and supporting these operative and strategic mechanisms, if effective and efficient, allows high risk reductions (Damodaran), decreases in loss and creation of virtuous circles. Nevertheless, this issues need an economic view and report, to show their return on investment, in particular where short term results are missing. The paper presents a methodology that could be considered a step beyond classical studies on cost of quality (i.e. PIMS of Boston Strategic Planning Institute, or Dale and Plunkett) to set up an index to measure Return on Quality (ROQ), intended as the operating revenue from investments on quality (introduced by Rust) as a “ROI of Quality”. This measure can support managers in projects implementation: in corporate analysis to focus on weak areas, to compare economic weights and highlight improvement opportunities; during design activities it can suggest strategic and diagnostic parameters to monitor; as a tool for validation, it is able to inform on performances of business process so to repeat and standardize the interventions if new margins are identified. The research proposes an application of the methodology and its implementation in a service case study where, as showed in literature (Parasuraman, Zeithaml, Berry), these opportunities could be particularly significant. A flight transportation service is studied to evaluate the activation of a world class best practice (Cunningham, Young, Lee): the minimization of booking in business class not converted in purchases, so to bring down no-show and give a better attention to customer. In particular, it is checked the opportunity to add some automatic controls during particular days before departure on flights with high reservation index. The approach considers the comparison of costs for the development and training of a dedicated team, along with supplying an appropriate information system, towards possible new revenues due to customer loyalty. The paper explains in details the project implementation, with 5 years return time, defining the parameters to evaluate: - gap between expected and perceived levels of quality, and its connection with customers retention (70% probability of new purchases if their satisfaction is high); - cost allocation analysis (direct and indirect), with a net present value of the investment of 3,2 M€; - benefits analysis from higher revenues, with a net present value of 2,8 M€/yr; - benefits analysis from savings, with a net present value of 0,105 M€/yr; - ROQ evaluation on three probabilistic scenarios (normal, optimistic, pessimistic).