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HBOK 1-377

Title Quality Costs: A Report Card on Business
Author(s) Janet Gray
Source Quality Progress
Topic Organizational Culture

Qualities of Customer-Focused Organizations

Knowledge Management

Abstract Measuring the results of quality efforts is vital at the corporate level.  An important monetary measurement is cost of quality.  Both service and manufacturing organizations can have quality costs systems.  In service companies, rework is the major failure cost, and quality costs can engulf up to half their operating expenses.  Quality costs help management accept or sell their plans for quality improvement to others. These measures also create benchmarks for assessing future improvements.  The basic procedure is to list the activities, jobs, and ledger accounts in three classes of quality costs:  correction, detection, and prevention.  Then, techniques like labor/resource claiming and unit pricing provide data to compare prevention costs and lower failure costs.  The quality cost effort might be run by an internal person, external consultant, or a team.  The accounting department should always have a role.  Good service relies not only on quality costs.  Also of importance are factors that affect customer satisfaction, such as cycle time and defect rate.
Access Restrictions ASQ members and journal subscribers
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Reference Code 1-377

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