COSTS OF QUALITY AND RETURN ON QUALITY:Total Quality Costs

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Total Quality Management MGT510

Lesson # 18

COSTS OF QUALITY AND RETURN ON QUALITY

The Cost of Quality:

It's a term that's widely used and widely misunderstood.The "cost of quality" isn't the price of

creating a quality product or service. It's the cost of NOT creating a quality product or service.Every

time work is redone, the cost of quality increases. Obvious examples include:

The reworking of a manufactured item.

The retesting of an assembly.

The rebuilding of a tool.

The correction of a bank statement.

The reworking of a service, such as the reprocessing of a loan operation or the replacement of a

food order in a restaurant.

In short, any cost that would not have been expended if quality were perfect contributes to the cost of

quality.

Total Quality Costs

As the table below shows, quality costs are the total of the cost incurred by:

Investing in the prevention of nonconformance to requirements.

Appraising a product or service for conformance to requirements.

Failing to meet requirements.

Quality Costs--general description

Failure Costs

Prevention Costs

The costs resulting from products or services not

The costs of all activities specifically

conforming to requirements or customer/user

designed to prevent poor quality in products

needs. Failure costs are divided into internal and

or services.

external failure categories.

Examples are the costs of:

· New product review

Internal Failure Costs

· Quality planning

Failure costs occurring prior to delivery or

· Supplier capability surveys

shipment of the product, or the furnishing of a

· Process capability evaluations

service, to the customer.

· Quality improvement team meetings

Examples are the costs of:

· Quality improvement projects

· Scrap

· Quality education and training

· Rework

· Re-inspection

Appraisal Costs

· Re-testing

The costs associated with measuring,

· Material review

evaluating or auditing products or services to

· Downgrading

assure conformance to quality standards and

performance requirements.

External Failure Costs

These include the costs of:

Failure costs occurring after delivery or shipment

· Incoming and source inspection/test

of the product -- and during or after furnishing of

a service -- to the customer.

of purchased material

· In-process and final inspection/test

Examples are the costs of:

· Product, process or service audits

· Processing customer complaints

· Calibration of measuring and test

· Customer returns

· Warranty claims

equipment

· Associated supplies and materials

· Product recalls

Total Quality Management MGT510

Total Non Quality Costs and Return on Quality:

The sum of the above costs to produce a product or to deliver a service. This represents the difference

between the actual cost of a product or service and what the reduced cost would be if there were no

possibility of substandard service, failure of products or defects in their manufacture. The measure of

revenue saved by producing the right product the first time and every time will actually be the return

one gets by implementing the system of quality.

In general if preventive system costs Rs. 1 like any QA system then QC overheads are RS 10 in

comparison. The costs incurred on failure is Rs 100 and even sometime higher (1000 or more) as you

may totally loose your customers, your rapport or your total market.

Hence we need to learn that quality system is an investment which ultimately reduces the total cost of

production or working as we have to consider every effort of ours financially accountable to make

quality a business case.

Quality is a continuous journey and hence not a destination.

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