Quality-Cost Analysis
Benefits and Risks
Cem Kaner
Definitions
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Quality:
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The total composite product and service characteristics of
marketing, engineering, manufacture and maintenance
through which the product and service in use will meet
the expectations of the customer.
The characteristics of the product that come together to
form the composite of the product are: reliability,
serviceability, maintainability, safety, attractability…
Quality of a product requires the balancing-off of these
requirements
It is a customer’s determination; it’s a measure of the
customer’s experience with the product or service against
customer’s requirements.
Nowadays, businesses consider quality as one of the
primary strategies, since it is a huge factor in determining
their success/failure.
In terms of software engineering, quality is defined as the
extent to which a particular software product meets its
specifications
Within every single development organization there is a
group who has the primary responsibility to ensure the
delivered product is what the client requested (to ensure
Definitions
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Control
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A process for delegating responsibility and authority for a management
activity while retaining the means of assuring satisfactory results.
This definition is based on industry terminology.
Quality Control
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The process of meeting the industrial quality goal; analogy to “production
control”. Made up of 4 steps:
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Setting standards
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Determining the required quality standards for the product
Appraising conformance
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Comparing the conformance of the developed product
Acting when necessary
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Correcting problems and their causes
Planning for improvement
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A continuing effort to improve the standards
Total Quality Control
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The process of achieving full effectiveness in meeting the industrial goal. It
has to start with the identification of customer requirements and ends only
when the product is given to the customer who remains satisfied.
Why is the scope so wide? Because the quality of a product is affected at
many stages:
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Marketing, engineering, manufacturing
Definitions
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Quality Cost:
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It is represented by the costs encountered in:
- preventing
- finding
- correcting the defective work
It represents the basis through which investment in quality
projects can be actually evaluated in terms of cost improvement,
profit enhancement….
Quality Costs have an impact through the entire life cycle of the
product, it does not stop at the shipping phase
They represent in general a significant amount
It is affected (reduced) by Total Quality Control.
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A little bit of History:
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“Gold in the Mine” concept
This concept triggered a better understanding of:
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1. The company’s accounting system
2. The identification of all the quality related costs
3. The idea of an ‘optimum’ for quality costs.
Definitions
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Quality Cost Analysis:
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The process that consists in comparing and
examining the individual quality cost item to each
other and to the total so that appropriate action could
be taken. Generally, it is more meaningful to talk
about time intervals and about absolute dollar
amounts.
History: One of its first advocates was quality
theorist: Joseph Juran.
The objective of quality cost analysis is to minimize
the total cost of quality across the life of a product
(therefore, to reduce the quality costs)
Quality cost analysis is a standard part of
traditional quality control
Definitions
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Total Quality Management (TQM)
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Represents the total quality control’s
organization wide impact.
Covers the full scope of the product and
service life cycle (conception->production>customer service)
The goal is to minimize quality costs
Quality Engineer:
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A person who is in charge of analyzing and
reducing the quality costs associated with a
product.
Software Engineering Context
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Quality Costs (sometimes overlap)
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Prevention Costs (Pc):
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Appraisal Costs (Ac):
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Costs associated with preventing poor quality.
examples: design errors, coding errors
Costs associated with revealing the poor quality
Testing 
Design reviews are somewhere in the middle
Failure Costs (Fc):
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Internal Failure Costs
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External Failure Costs
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Costs encountered before the product was shipped to the
customer
Example: fixing bugs
Costs encountered after product was shipped to the customer
Example: patching a released product and distributing the patch
Total Cost of Quality = Pc + Ac + Fc
Prevention Costs
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The costs encountered in the activities
preventing poor quality.
Examples:
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Staff training
Early Prototyping/Requirements analysis
Clear Specification/unambiguous documentation
Evaluation of the development tools that will be
used
Interesting features:
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The costs are distributed to almost all the groups
involved in the product development. Any group
that might not be affected?
Defensive programming?
Defensive Programming
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Defensive programming is the practice of
anticipating where failures can occur and then
creating an infrastructure that tests for errors,
notifies you when anticipated failures occur, and
performs damage-control actions you have
specified-- such as stopping program execution,
redirecting users to a backup server, enabling
debugging information you can use to diagnose
the problem.
This way:
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problems that might otherwise go unnoticed are
detected
small errors that might turn into disasters are
caught
a lot of debugging and maintenance could be
saved.
Appraisal Costs:
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The Costs encountered in the activities
aimed at revealing quality problems.
Examples:
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Glass box testing
Black box testing
Code inspections
Test automation
Interesting issues:
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What about design review?
 Part appraisal, part prevention
Internal Failure
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The Costs encountered before the product
distribution to the customers.
Examples
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Fixing bugs
Regression testing
Interesting issues:
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What about cost of delays and of lost opportunity?
Like: Direct and Opportunity cost of late shipment
and Wasted advertisements
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These are costs borne by the groups outside the
product development
Might give birth to controversy, so it is
recommended not to be used especially the first
times the organization is try to implement the
quality-cost analysis.
External Failure
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Costs encountered after the product has
already been shipped to the customers.
Examples:
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Investigation of customer complaints
Refunds and recalls
Lost sales
Coding/testing/shipping of updated product
 Can this always be done?
All costs imposed by law
Interesting issues:
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What about cost of high turnover or cost of lost
pride?
 Hard to estimate
Benefits
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The goal is to reach minimum quality costs at the desired
outgoing quality level.
It’s a feed-back mechanism: quality costs data is used by the
management to make decisions that will impact the quality
costs.
Applications of Quality Costs
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Measurement Tool:
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Process-Quality Analysis Tool
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Quality costs can serve effectively as an analysis tool and point out
where the problems are
Programming Tool
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Quality costs provide comparative measurements for evaluating quality
programs versus the value of the results achieved
Quality costs determine how the available resources to be divided
Predictive Tool
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Quality costs can also be used to evaluate and assure performance in
relation to the goals and objectives of the organization.
Benefits
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Benefits by examples:
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This approach gives insights in how
companies that don’t use the TQM
might be helped.
Example in the paper. An individual does
a quality-cost analysis and makes his
point.=>next slide
 It raises other questions that can be
approached by individuals in an
organization
 Class Exercise!
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Real life example. Do you know any
example?
Benefits (example)
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Get Cost Estimates for:
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1.
2.
3.
4.
5.
6.
ask the writers
ask the training staff
ask Technical Support
ask The programmers
ask The sale staff
what about magazine reviews
A different story
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1. it’s not just your opinion anymore
2. business argument … money, money, money
3. valid data
Risks
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Implementation Risks
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Not being realistic and trying to achieve too
much too soon.
Controversial costs should be left aside,
especially the first few times the company is
trying to implement the quality-costs analysis
Other risks:
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Looking only from the point of view of the
company, not looking at the customer’s costs
(example)
Might result in other types of risk:
 Customer Dissatisfaction
 Litigation
Ford Pinto litigation
Benefits and Costs Relating to Fuel Leakage
Associated with the Static Rollover Test Portion of FMVSS 208
Benefits
Savings — 180 burn deaths, 180 serious burn injuries, 2100 burned
vehicles
Unit Cost -- $200,000 per death, $67,000 per injury, $700 per vehicle
Total Benefit — 180 x ($200,000) + 180 x ($67,000) + 2100 x ($700) =
$49.5 million.
Costs
Sales — 11 million cars, 1.5 million light trucks.
Unit Cost -- $11 per car, $11 per truck
Total Cost — 11,000,000 x ($11) + 1,500,000 x ($11) = $137 million.
Ford Pinto
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Quality-cost analysis looks at the costs
from only the companies’ perspective.
However, these costs might not be easily
estimated
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It ends up costing Ford way more
Motors Corp vs Johnston
When calculating the trade-off between
several factors (costs one of them) it is
important for the companies to realize
and take into account the customer’s
costs.
Another look at External Failure Costs
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Borne by seller
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Given in the previous slide
Borne by buyer
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Death / Injury
Embarrassment
Might affect their customers
Cost of tech support
Cost of replacing product
Why are the companies reluctant to
implement quality-costs analysis?
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Skepticism ; some companies have tried and failed or they
are aware of other companies that tried and failed
They don’t know whom to trust; there are many advocates
and agendas.
They believe in “Our business is different.”
Mediocre quality is still saleable.
The confusion in language—the belief that “higher quality
costs more.”
Certification to the ISO 9000 will solve all their issues related
to quality performance.
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ISO 9000: The quality management system standards, which are
based on the eight quality management principles:
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Principle
Principle
Principle
Principle
Principle
Principle
Principle
Principle
1
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3
4
5
6
7
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Customer focus
Leadership
Involvement of people
Process approach
System approach to management
Continual improvement
Factual approach to decision making
Mutually beneficial supplier relationships
References
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“Quality Control Handbook”, J.M. Juran, Third
Edition 1979
“Total quality control”, A.V. Feigenbaum, Third
Edition 1991
“Quality Management: Implementing the best
ideas of the masters”, Bruce and Suzzane Brocka,
1992
“Why TQM fails and what to do about it”, Mark
Graham Brown, Darcy E. Hitchcock, Marsha L.
Willard, 1994
http://www.iso.ch/iso/en/
http://www.parasoft.com/