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Cost of Quality


Effective quality management strategy requires metrics which are aligned with organizational overall strategic objectives. Keeping score for all quality management activities, investments, and operating expenses is critical. A mix of operational and financial metrics is required for tracking and reporting of quality management results. The cost of quality analysis helps organizations to focus productivity improvement efforts effectively and to evaluate the cost and benefit tradeoffs of quality improvement alternatives.

Joseph Juran divided the costs of quality into 4 categories: prevention, appraisal, internal failure, and external failure. By using this cost of quality approach we can analyze and identify all costs related to quality activities and at the same time this approach gives us a clear picture on how the costs are allocated among different quality activities and categories. We can learn how reactive versus proactive our quality management system is and identify areas for improvement in quality, productivity, and cost structure.

Prevention - costs associated with preventing quality nonconformance such as product defects, service errors, etc. Example: quality inspections, process analysis, data collection, reporting.

Appraisal - costs associated with determining compliance within specified quality requirements. Example: testing and associated activities.

Internal Failure - costs associated with identifying quality nonconformance in house (before product delivery to customers). Example: Defect management, rework, retesting.

External Failure - costs associated with dealing with quality nonconformance detected by the customer (after product delivery to customers). Example: customer service, technical support, returns, warranties.


Example of Cost of Quality Analysis:


Steps in performing Cost of Quality Analysis:

1. Identify all activities related to managing quality

2. Assign cost associated to each activity

3. Group all quality activities into the four categories


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