In process improvement efforts, quality costs or cost of quality is a means to quantify the total cost of
quality
Quality may refer to:
Concepts
*Quality (business), the ''non-inferiority'' or ''superiority'' of something
*Quality (philosophy), an attribute or a property
*Quality (physics), in response theory
* Energy quality, used in various science discipl ...
-related efforts and deficiencies. It was first described by
Armand V. Feigenbaum in a 1956
Harvard Business Review
''Harvard Business Review'' (''HBR'') is a general management magazine published by Harvard Business Publishing, a wholly owned subsidiary of Harvard University. ''HBR'' is published six times a year and is headquartered in Brighton, Ma ...
article.
Prior to its introduction, the general perception was that higher quality requires higher costs, either by buying better materials or machines or by hiring more labor. Furthermore, while
cost accounting
Cost accounting is defined as "a systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services in the aggregate and in detail. It includes methods for recognizing, classifying, al ...
had evolved to categorize financial transactions into revenues, expenses, and changes in shareholder equity, it had not attempted to categorize costs relevant to quality, which is especially important given that most people involved in manufacturing never set hands on the product. By classifying quality-related entries from a company's general
ledger
A ledger is a book or collection of accounts in which account transactions are recorded. Each account has an opening or carry-forward balance, and would record each transaction as either a debit or credit in separate columns, and the ending or ...
, management and quality practitioners can evaluate investments in quality based on cost improvement and profit enhancement.
Definitions
Feigenbaum defined the following quality cost areas:
The central theme of
quality improvement
Quality management ensures that an organization, product or service consistently functions well. It has four main components: quality planning, quality assurance, quality control and quality improvement. Quality management is focused not o ...
is that larger investments in prevention drive even larger savings in quality-related failures and appraisal efforts. Feigenbaum's categorization allows the organization to verify this for itself. When confronted with mounting numbers of defects, organizations typically react by throwing more and more people into inspection roles. But inspection is never completely effective, so appraisal costs stay high as long as the failure costs stay high. The only way out of the predicament is to establish the "right" amount of prevention.
Once categorized, quality costs can serve as a means to measure, analyze, budget, and predict.
Variants of the concept of quality costs include
cost of poor quality
Cost of poor quality (COPQ) or poor quality costs (PQC), are costs that would disappear if systems, processes, and products were perfect.
COPQ was popularized by IBM quality expert H. James Harrington in his 1987 book ''Poor Quality Costs''.
COP ...
and categorization based on account type, described by
Joseph M. Juran
Joseph Moses Juran (December 24, 1904 – February 28, 2008) was a Romanian-born American engineer and management consultant. He was an evangelist for quality and quality management, having written several books on those subjects. He was the brot ...
.
ISO 9004 also accounts for "external assurance" quality costs to account for customer– or government–required certifications (e.g., for
UL,
RoHS
The Restriction of Hazardous Substances Directive 2002/95/EC (RoHS 1), short for Directive on the restriction of the use of certain hazardous substances in electrical and electronic equipment, was adopted in February 2003 by the European Unio ...
, or even ISO 9000 itself).
Reporting
To ensure impartiality, reporting should be performed by the accounting department. Additionally, to make it more understandable to a wider audience, the total cost of quality should be reported as a percent of sales, cost of sales, cost of manufacturing, or for firms in the service industry, cost of operations.
See also
*
Activity-based costing
Activity-based costing (ABC) is a costing method that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each. Therefore, this model assigns more in ...
*
Gold in the mine
*
Project triangle
The project management triangle (called also the ''triple constraint'', ''iron triangle'' and ''project triangle'') is a model of the constraints of project management. While its origins are unclear, it has been used since at least the 1950s. It ...
References
{{DEFAULTSORT:Quality Costs
Costs
Quality control