4. I was proud of some of the B pictures we made, but a lot of them were pretty poor. They were movies the studio didn’t want good, they just wanted ‘em Thursday.
Ronald Reagan

5. This is because of an increase in the:
Cost of quality because of intensification in the use of technology
Sophistication of end-users in their consideration of life cycle costs
Use of quality cost data internally to make quality management related decisions

6. The definitions provided in standards such as BS 4778, BS 6143 (Guide to the economics of quality ) or ISO 9000 illustrate that there is no universal consensus upon just what constitutes quality costs
Traditionally, costs of quality (COQ), have been considered as the cost of running a quality assurance system (complete or in development), with perhaps the inclusion of other costs, such as - scrap and warranty costs
Present day thinking, by experienced quality practitioners, tend towards accepting that quality costs are incurred in the design, implementation, maintenance and improvement of a quality practice, technique or applied system

7. 12.6 Failure costs - internal
BS Part 2 classifies quality costs into the following:
12.3 Quality related costs
The expenditure incurred in defect prevention and appraisal activities plus the losses due to internal and external failure
12.4 Prevention costs
The cost of any action taken to investigate, prevent or reduce defects and failures. Prevention costs can include the cost of planning, setting up and maintaining the quality control system, process design, product and service design and employee training schemes
12.5 Appraisal costs
The cost of assessing the quality achieved. Appraisal costs can include the cost of inspecting, testing, etc. carried out during and on completion of manufacture of product or service
12.6 Failure costs - internal
The costs arising within the manufacturing processes of the organization of the failure to achieve specified quality. This can include the cost of scrap, rework and re-inspection
12.7 Failure costs - external
The costs arising from outside the manufacturing organization of the failure to achieve quality specified. The term can include the costs of claims against warranty, replacement and consequential losses of custom and goodwill

8. Cost Cost of Control Cost of Failure to Control Prevention Appraisal
(Conformance)
Cost
Cost of Failure to Control
(Non-Conformance)
External Failure
Internal Failure
Figure 3.1

9. Quality costing appeals to top management as its language is in tangible terms regarding financial entities
Using quality costs in this way, for developing and encouraging quality improvement, will substantiate the application of TQM philosophies and practices and help support such quality initiatives

10. This is the point where minimum total quality costs and failure and appraisal/prevention are in line
This means that utilising Juran’s quality cost model suggests that the optimum quality costs level actually includes the possibly of tolerating defective product resulting from a process

11. Cost/Non-Defective Unit Produced
Total Quality
Costs
Cost/Non-Defective Unit Produced
Failure Costs
Cost of Appraisal/Prevention
100% Defective
100% Non-Defective
Based on Juran’s Quality Control Handbook, McGraw-Hill,1979
Figure 3.2

12. In the average UK organisation the analysis of quality related costs are:
65% failure costs
30% appraisal costs
5% prevention costs
Costs may be in the range of % of sales turnover

13. There is a price to pay for any built-in quality found in the output of an organization’s production processes
Measuring quality costs will help a manager quantify quality related costs in management terms and this leads to a positive organisational performance strategy
Performances across a wide spectrum of quality related activities need to be measured and this will provide a foundation for internal quality cost comparisons between departments, processes, production outputs and the breadth of any services provision

14. Cost of Conformance Quality (COC) is the understanding by management through realistic cost data of the savings that can be made by introducing quality practices
Campenella (1999) breaks those costs down in terms of the following equation:
Cquality=Cconformance+Cnon-conformance

15. Cost of Conformance (COC)
Conformance quality is an aim of many quality mechanisms. However, this aim is achieved at a price. Examples of these are:
(1) Documentation - Writing work-technical instructions and producing administrative effort
(2) Training - On the job training, quality training, etc.
(3) Auditing – Internal and external
(4) Planning - Prevention
(5) Inspection - Equipment, machines, facilities/buildings, vehicles and people

16. Cost of Non-Conformance (CONC)
This area covers the price paid by not having quality systems or a quality product. Examples of this are:
(1) Rework – Producing the part or service again because it wasn't right the first time
(2) Scrap - Discarding the results of production work because it was assessed not to be to the required standard
(3) Waiting - Time wasted whilst waiting for other parts/process outputs/people
(4) Down Time - Not being able to accomplish production output because a piece of equipment or machine has an unplanned maintenance problem which restricts or stops a production process temporarily

17. This can be seen as:
The extra material needed to be supplied to accommodate this extra wastage
The extra manpower costs of labour and perhaps overtime
The opportunity cost of working on a part the second time round or in the case of a scrapped item, on a completely new part
Possible delays in the ultimate shipment of the order
Increased machine maintenance and repair costs
Increased risk of machine breakdown
Reduced production capacity resulting from the need to over-produce in order to manufacture a given quantity of production items

18. Category Sub-Metric Prevention Costs Appraisal Costs Table 3.1
Quality engineering Audits of the effectiveness of the quality system Statistical process control activities Supervision of prevention activities Quality data gathering, analysis, and reporting Quality improvement projects and analysis of outcomes Technical support provided to suppliers Quality training Quality circles
Appraisal Costs
Test and inspection of incoming materials Test and inspection of in-process goods Final product testing and inspection Maintenance of test equipment
Supplies used in testing and inspection Supervision of testing and inspection activities Field testing and appraisal at customer site
Table 3.1

19. Internal Failure Costs
Category
Sub-Metric
Internal Failure Costs
Net cost of scrap and spoilage Re-work labour and overheads Re-inspection of reworked products Retesting of re-worked products Process downtime caused by quality problems Disposal of defective products Procedure development and analysis of the cause of defects in production Re-entering data because of data keying errors
External Failure Costs
Cost of field servicing and handling complaints Warranty repairs and replacements Repairs and replacements beyond the warranty period Product recalls Liability arising from defective products Returns and allowances arising from quality problems Lost sales arising from a reputation for poor quality
Table 3.1

20. Producer: external failure costs Customer/Client: failure costs
These are the category of costs experienced by some producers of defective product
These are the category of costs experienced by customers who purchases a defective product
Lost sales
Warranty costs
Support communications
Investigation of customer complaints
Refunds and product recalls
Replacement/shipping of new product
Public Relations performances
Lost customer goodwill
Legal Liability costs
Insurance costs
Government investigations
Support costs
Producer complaint costs
Wasted time
Lost business
Embarrassment
Cost of replacing/repairing product
Cost of finding a new supplier
Costs associated with new buying process
Table 3.2

21. All products/markets/services have life-cycles
The cost of the product/service should not just be limited to the cost at purchase. It should also include the cost of maintenance and the consequent running cost of the product
Designing a product that lowers the overall life-cycle cost may mean that the initial cost may be higher than originally anticipated, but the consumer and society as a whole would benefit in the long run

22. Over the longer term, an organisational cost accounting system that is designed to track quality-related costs can be a fundamentally important management tool
Organisations undertaking appropriate cost data analysis and its consequent cost oriented decision-making will benefit enormously in terms of cost management
Surveys conducted by Roche (1981) and Duncalf and Dale (1985), suggested that only about one-third of the companies studied actually collected quality related cost data
These findings further suggests that less than 40% of companies collect and analyse quality cost data in a systematic manner. When quality costs are measured the costs most targeted were those for cost of scrap, rework and any warranty claims

23. Stage One Stage Two Stage Three Stage Four
Ambiguity Modelling Clarification Comprehension
Reflects lack of quality related data about cost management
Relates to a
an organisational
need to develop
and use quality
cost related data
Top management
assesses the
outcomes of using and relying on quality cost data
Top management
builds on modelling
and clarification
stages about using
quality cost data to
reinforce future
quality cost
developments
Figure 3.3

24. One key decision that needs to be made at the design stage of the deployment of any quality related project is whether financial services should be involved from the very beginning
Financial services should be included as a partner in the quantification of the quality design parameters of a process as well as in the deployment design

25. Table 3.3 Cost of Quality Investment Analysis Oh’s Plant Criteria
No Formal Testing
Manual Testing
Machine Testing
Testing and Repair
Staff
10,000
8000
Buildings
6,000
Tools
1000
5000
Power
800
1200
Investment Amount
$17,800.00
$20,200.00
Table 3.3

26. Table 3.3 Criteria No Formal Testing Manual Testing Machine Testing
Design Development
Defect Analysis 25
Defect Fix Cost
$550.00
(Internal Failure Cost)
Repair 75
115
$0.00
$15,750.00
$24,150.00
Table 3.3

27. Table 3.3 Total Cost of Quality Criteria No Formal Testing
Manual Testing
Machine Testing
Customer Analysis
Defect Reported
125 50 10
Defect Fix Cost
$123,750.00
$49,500.00
$9,900.00
(External Failure Cost)
Cost of Quality
Conformance Costs
$0.00
$17,800.00
$20,200.00
Non-conformance Costs
$124,300.00
$65,800.00
$34,600.00
Total Cost of Quality
$83,600.00
$54,800.00
Table 3.3