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Karan K Bhalla Roll no 101 MBA Tech - IT
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What is cost of quality? Why to know cost of quality? Categorizing types Failure Costs- internal, external Appraisal Costs Prevention Costs Total Quality Costs Advantage of preventing poor quality How to prevent poor quality? Case Study Optimizing costs Benefits of quality costs Conclusion
which can be controlled.` ` ` ` ` ³The expense of not conforming to quality requirements´ It is a tool used to asses the losses from a process. IT IS NOT: The cost to create a quality product or service . It is measured in currency values. Management/QC dept. can evaluate investments in quality while yet focusing on the bottom lines.
` ` ` ` ` Understand hidden costs Eliminate unrequired costs Prevent problems from occurring in the future Can prioritize quality improvement efforts Speaks the language of management. since it translates quality efforts into effect on profits .
` Quality costs can be categorized into the following types: Cost of poor quality x Internal failure costs x External failure costs Cost of achieving good quality x Appraisal Costs x Prevention Costs .
IT . 105 MBA Tech .Fenil Gandhi Roll no.
rework. retesting (factory and supplier) ` Overtime. unrequired material handling . scrap.Internal failure costs ` Cost incurred when product/service fails to meet quality requirements before it can be delivered to the customer Examples: ` Redesign. downtime ` Inventory pile up.
guarantee. concessions for compensation. brand image & reputation ` Cost (freight charges) to recall the product ` Time used to resolve the complaints ` Discounts. loyalty ` Loss of market share. rework costs ` Drop in customer satisfaction.External failure costs ` Cost incurred due to failure at customer¶s end Examples: ` Warranty. .
Cost to measure. Examples: ` Incoming material inspection ` Lab testing ` Testing tools ` Procedure evaluation ` Final product inspection ` . evaluate. audit conformance to predefined product/service quality.
` These activities are used to minimize failure and appraisal costs Example: ` Design reviews ` Quality improvement projects ` Staff and worker training ` Vendor evaluation and training ` Procedure writing ` Pilot projects.Cost of ALL activities specifically designed to prevent products/services below predefined quality standards. testing ` .
It can be measures and presented in the terms of: ` % of sales ` % of profits ` % of manufacturing costs ` Rs per direct labor hr. ` Rs per unit of product .
IT .Priyam Gupta Roll no 108 MBA Tech.
Total Quality costs Appraisal Costs Prevention Costs ` This represents the difference between the actual cost of a product or service and what the reduced cost would be if there were no possibility of substandard service. failure of products or defects in their manufacture.Internal failure costs External failure costs ` The sum of the above costs. .
Prevention Costs Appraisal Costs Benefit Repair Costs Prevention Costs Appraisal Costs Repair Costs Failure Costs Failure Costs Internal External Before Quality Cost Alignment After Quality Cost Alignment .
3. Determine categories of quality costs Create measurement system that captures categories of quality costs Assign responsibility to collect data Analyse collected data . 4.1. 2.
Deepak Ramkrishna Roll no.IT . 114 MBA Tech .
` ` ` ` ` Understand your product Understand your process Understand where problems occur Determine precisely what goes wrong Determine what costs represents each problem .
` ` ` ` ` 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 .
If quality cost data is required then make it the responsibility of the person who creates the cost to collect the data .` ` Make individuals at all levels responsible for collecting quality cost 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 .
Roshan James Roll no 115 MBA Tech .IT .
The company wants to assess its quality assurance program and develop quality index using sales basis for the 4 year period. .` ` ` The company instituted a quality improvement program in 1999 It has recorded the following quality cost data and accounting measures for 4 years.
In 2000 company spent more money on product monitoring and inspection that resulted into high appraisal cost.e. In year 2001 & 2002 company spent more money on prevention activities i. H&S was able to identify more defective items. With this strategy. redesigning the production process and planning how to build in product quality etc.` ` ` ` ` Approximately 75% of the H&S¶s total quality costs are a result of internal and external failures. resulting in an apparent increase in internal failure cost and lower external failure cost. Prevention costs increased by more than 300 % during the 4 year period resulted into decrease in overall quality costs . training of employees.
360.58 ` These index no's alone provide little insight into the effectiveness of the quality management program.400/4. .` ` The H&S company also desired to develop index numbers using quality costs as a proportion of sales. for 1999 sales is: = (810. Quality index no.000)*100 = 18. however as a standard to make comparisons over time they can be useful.
Aman Tekriwal Roll no.IT . 121 MBA Tech .
reduction in the overall cost of each product or service is beneficial This can be done by establishing the optimum level of preventive and appraisal cost that minimizes resultant error costs. The net result of quality improvement should be a reallocation of costs across the cost of quality categories resulting in a reduction in the overall cost of quality.` ` ` ` The further along in the process that quality is worked into the product or service. the higher the cost of quality. . Hence.
` ` ` ` ` ` Quantify the size of the quality problem Identify major opportunities for cost reductions It helps in Identification of opportunities for reducing customer dissatisfaction and associated threats to product salability Measures the results of quality improvement activities Align quality goals with organizational goals Set cost reduction targets .
` ` ` Cost of quality is the expense of non-conformance ± the cost of doing things wrong. cost incurred for poor quality decreases simultaneously. This tool enables the issue of quality to be reframed in a manner which brings interest to the top management since it speaks directly in terms of financial terms . When cost of achieving good quality increases.