“Cost of quality is … the expense of noncomformance – the cost of doing things wrong.” Crosby, P. 1979, Quality is Free

1. “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 Page 1

2. 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 Page 2

3. 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 Page 3

4. Categories of Quality Costs • Failure Costs • Repair Costs • Appraisal Costs • Prevention Costs Cost of Quality Page 4

5. 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 Page 5

6. 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 Page 6

7. 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 Page 7

8. 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 Page 8

9. Prevention Costs Appraisal Costs Benefit $ Repair Costs Prevention Costs • Failure Costs • Internal • External Appraisal Costs Repair Costs Failure Costs Before Quality Cost Alignment After Quality Cost Alignment Preventing Poor Quality Pays Cost of Quality Page 9

10. 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 Page 10

11. 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 Page 11

12. 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

13. 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 Page 13

14. 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 Page 14

15. 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 Page 15

16. 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 Page 16

17. 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 Page 17

18. “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 Page 18