Cost of Quality

Cost of quality is
the expense of noncomformance
the cost of doing things wrong.

Crosby, P. 1979, Quality is Free, McGraw-Hill, Toronto

Cost of Quality
Opportunity to Reduce Real Costs
Understand quality costs enables you to
Understand hidden costs
Reduce and eliminate unnecessary cost
Prevent problems from happening
Management responsibility to enable this
Cost of Quality
Understand Quality Costs
Quality costs are real and estimated at:
25% of costs in manufacturing
35% of costs in service industry
Quality costs can be categorised to enable
better understanding
Cost of Quality
Categories of Quality Costs
Failure Costs
Repair Costs
Appraisal Costs
Prevention Costs
Cost of Quality
Failure Costs
Those costs incurred because poor quality
products do exist
Can be further divided into sub-categories of:
Internal failure costs
External failure costs

Cost of Quality
Repair Costs
Those costs incurred if poor quality products
receive further processing
If this occurs then the previous processing is
wasted cost
Why would you do this?
Cost of Quality
Appraisal Costs
Those costs incurred because poor quality
products might exist
If these costs are necessary then the process
is flawed and management is guilty
Why would you permit this?
Cost of Quality
Prevention Costs
Those costs incurred because poor quality
products can exist and
Those costs incurred because management
is committed to prevent poor quality products
from happening
Why would you not do this?
Cost of Quality
Preventing Poor Quality Pays
Failure Costs
Internal
External
Failure Costs
Repair Costs
Repair Costs
Appraisal Costs
Appraisal Costs
Prevention Costs
Prevention Costs
$
Before Quality
Cost Alignment
After Quality
Cost Alignment
Benefit
Cost of Quality
Preventing Poor Quality Pays
Would it not make sense to prevent poor
quality products from happening?
How can this be done?
Whose responsibility is this?
Cost of Quality
How to Prevent Poor Quality
Prepare to measure costs of quality
Determine categories of quality costs
Create measurement system that
captures categories of quality costs
Assign responsibility to collect data
Analyse collected data
Cost of Quality
Determine Quality Cost Categories
Understand your product
Understand your process
Understand where problems occur
Determine precisely what goes wrong
Determine what costs represents each problem
Cost of Quality
Creating Data Collection System
Create measurement system
Attempt to harness existing financial
accounting system
Manipulate existing financial data
Collect costs as they occur
Whatever you do ensure costs are accurate
Cost of Quality
Assign Responsibility
Make individuals at all levels responsible for
collecting quality cost data:
If quality cost data is required then make
it the responsibility of the person who
creates the cost to collect the data
If no one is responsible no one will bother
Cost of Quality
Analyse Collected Data
Data on its own is useless
You must have it analysed to be able to
extract meaning
Determine what knowledge you require
Develop an analysis system that provides the
knowledge you require
Cost of Quality
Useful Quality Cost Knowledge
What you need to know is useful
What you do not need to know is useless
Only ask for knowledge you need to know
Demand that knowledge is presented so that
it can be understood easily
Cost of Quality
Management is Responsible
Management decides what to produce in
terms of Products (goods and / or services)
Management assigns responsibilities to
produce products
Management is accountable for effectively
using resources to produce products
Cost of Quality
Cost of quality is
the expense of nonconformance
the cost of doing things wrong.

Crosby, P. 1979, Quality is Free, McGraw-Hill, Toronto