1. the expense of noncomformance – the cost of doing things wrong.”
“Cost of quality is …
the expense of noncomformance –
the cost of doing things wrong.”
Crosby, P. 1979, Quality is Free, McGraw-Hill, Toronto
Dr Lionel Boxer
 Intergon 2004
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
Dr Lionel Boxer
 Intergon 2004
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
Dr Lionel Boxer
 Intergon 2004
Cost of Quality
Page 3

4. Categories of Quality Costs
Failure Costs
Repair Costs
Appraisal Costs
Prevention Costs
Dr Lionel Boxer
 Intergon 2004
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
Dr Lionel Boxer
 Intergon 2004
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?
Dr Lionel Boxer
 Intergon 2004
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?
Dr Lionel Boxer
 Intergon 2004
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?
Dr Lionel Boxer
 Intergon 2004
Cost of Quality
Page 8

9. Preventing Poor Quality Pays
Failure Costs
Internal
External
Repair Costs
Appraisal Costs
Prevention Costs $
Before Quality Cost Alignment
After Quality Cost Alignment
Benefit
Dr Lionel Boxer
 Intergon 2004
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?
Dr Lionel Boxer
 Intergon 2004
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
Dr Lionel Boxer
 Intergon 2004
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
Dr Lionel Boxer
 Intergon 2004
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
Dr Lionel Boxer
 Intergon 2004
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
Dr Lionel Boxer
 Intergon 2004
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
Dr Lionel Boxer
 Intergon 2004
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
Dr Lionel Boxer
 Intergon 2004
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
Dr Lionel Boxer
 Intergon 2004
Cost of Quality
Page 17

18. the expense of noncomformance – the cost of doing things wrong.”
“Cost of quality is …
the expense of noncomformance –
the cost of doing things wrong.”
Crosby, P. 1979, Quality is Free, McGraw-Hill, Toronto
Dr Lionel Boxer
 Intergon 2004
Cost of Quality
Page 18