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 Appraisal Costs

Benefit

Repair Costs

Prevention Costs Appraisal Costs Repair Costs Failure Costs

Failure Costs Internal External

Before Quality Cost Alignment

Dr Lionel Boxer Intergon 2004 Cost of Quality Page 9

After Quality Cost Alignment

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
Cost of Quality Page 12 http://intergon.net 24 Sep 2004

Dr Lionel Boxer Intergon 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
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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