Costs of Quality

1. Costs of Quality Chapter 6

2. Costs of Quality • What are quality costs? • A quality cost is considered o be any cost that a company incurs in order to ensure that the quality of the product or service is perfect. • Quality costs are the portion of the operating costs brought about by providing a product or service that does not conform to performance standards. • Quality costs are also the costs associated with the prevention of poor quality.

3. Costs of Quality • Quality costs increase as the faulty product or service reaches the customer.

4. Costs of Quality • In his book, Quality is Free, Philip Crosby focused management attention on the costs of quality, the cost of not doing things right the first time.

5. Costs of Quality • The four absolutes of quality management set expectations for a continuous improvement process to meet: • Conformance to requirements • Prevention of defects • Zero defects • Costs of quality

6. Costs of Quality • Types of Quality Costs • Prevention Costs • Appraisal Costs • Failure Costs • Intangible Costs

7. Costs of Quality • Prevention Costs • Prevention costs are those costs that occur when a company is performing activities designed to prevent poor quality in products or services.

8. Costs of Quality • Appraisal Costs • Appraisal costs are the costs associated with measuring, evaluating, or auditing products or services to make sure that they conform to specifications or requirements

9. Costs of Quality • Failure Costs • Failure costs occur when the completed product or service does not conform to customer requirements • Internal Failure Costs • Those costs associated with product non-conformities or service failures found before the product is shipped or the service is provided to the customer. • External Failure Costs • Those costs that occur when a nonconforming product or service reaches the customer.

10. Costs of Quality • Intangible Costs • Intangible costs are the hidden costs associated with providing a nonconforming product or service to a customer. They involve the company’s image.

11. Costs of Quality • Quality Cost Measurement System • By quantifying quality costs, all individuals producing a product or service understand what it will cost if quality suffers. • A quality-cost measurement system should be designed to keep track of the different types of quality costs so that they can be eliminated through root cause analysis.

12. Costs of Quality • Utilizing Quality Costs for Decision Making • Quality costs can be used as justification for actions taken to improve the product or service.