Cost of Quality
INTERGON
“Cost of quality is …
the expense of noncomformance –
the cost of doing things wrong.”
Crosby, P. 1979, Quality is Free, McGraw-Hill, Toronto
Dr Lionel Boxer
 Intergon 2004
Cost of Quality
Page 1
http://intergon.net
24 Sep 2004
Cost of Quality
INTERGON
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
Dr Lionel Boxer
 Intergon 2004
Cost of Quality
Page 2
http://intergon.net
24 Sep 2004
Cost of Quality
INTERGON
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
Dr Lionel Boxer
 Intergon 2004
Cost of Quality
Page 3
http://intergon.net
24 Sep 2004
Cost of Quality
INTERGON
Categories of Quality Costs
•
•
•
•
Failure Costs
Repair Costs
Appraisal Costs
Prevention Costs
Dr Lionel Boxer
 Intergon 2004
Cost of Quality
Page 4
http://intergon.net
24 Sep 2004
Cost of Quality
INTERGON
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
Dr Lionel Boxer
 Intergon 2004
Cost of Quality
Page 5
http://intergon.net
24 Sep 2004
Cost of Quality
INTERGON
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?
Dr Lionel Boxer
 Intergon 2004
Cost of Quality
Page 6
http://intergon.net
24 Sep 2004
Cost of Quality
INTERGON
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?
Dr Lionel Boxer
 Intergon 2004
Cost of Quality
Page 7
http://intergon.net
24 Sep 2004
Cost of Quality
INTERGON
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?
Dr Lionel Boxer
 Intergon 2004
Cost of Quality
Page 8
http://intergon.net
24 Sep 2004
Cost of Quality
INTERGON
Preventing Poor Quality Pays
Prevention Costs
Benefit
Appraisal Costs
$
Dr Lionel Boxer
 Intergon 2004
Repair Costs
Prevention Costs
Failure Costs
• Internal
• External
Appraisal Costs
Before Quality
Cost Alignment
After Quality
Cost Alignment
Repair Costs
Failure Costs
Cost of Quality
Page 9
http://intergon.net
24 Sep 2004
Cost of Quality
INTERGON
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?
Dr Lionel Boxer
 Intergon 2004
Cost of Quality
Page 10
http://intergon.net
24 Sep 2004
Cost of Quality
INTERGON
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
Dr Lionel Boxer
 Intergon 2004
Cost of Quality
Page 11
http://intergon.net
24 Sep 2004
Cost of Quality
INTERGON
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
Dr Lionel Boxer
 Intergon 2004
Cost of Quality
Page 12
http://intergon.net
24 Sep 2004
Cost of Quality
INTERGON
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
Dr Lionel Boxer
 Intergon 2004
Cost of Quality
Page 13
http://intergon.net
24 Sep 2004
Cost of Quality
INTERGON
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
Dr Lionel Boxer
 Intergon 2004
Cost of Quality
Page 14
http://intergon.net
24 Sep 2004
Cost of Quality
INTERGON
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
Dr Lionel Boxer
 Intergon 2004
Cost of Quality
Page 15
http://intergon.net
24 Sep 2004
Cost of Quality
INTERGON
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
Dr Lionel Boxer
 Intergon 2004
Cost of Quality
Page 16
http://intergon.net
24 Sep 2004
Cost of Quality
INTERGON
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
Dr Lionel Boxer
 Intergon 2004
Cost of Quality
Page 17
http://intergon.net
24 Sep 2004
Cost of Quality
INTERGON
“Cost of quality is …
the expense of noncomformance –
the cost of doing things wrong.”
Crosby, P. 1979, Quality is Free, McGraw-Hill, Toronto
Dr Lionel Boxer
 Intergon 2004
Cost of Quality
Page 18
http://intergon.net
24 Sep 2004