Cost of quality

Dr. Essam Hamed Amin

MQM, DBAQM
Business Development Consultant
The lecturer
Dr. Essam Hamed Amin
MQM, DBAQM
Senior Quality Consultant
Member of The Egyptian Society for Quality in Health
Care (ESQua)
Member of The International Society for Quality In Health
Care (ISQua)
Team Leader In Sheikh Khalifa Excellence Award (SKEA)
Team Leader in Abu Dhabi Award for Excellence in
Government Performance (ADAEP)
Lead Auditor (IRCA register) for ISO 9001:2000
 “Cost of quality is …
the expense of nonconformance –
the cost of doing things wrong.”
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
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
Categories of Quality Costs
• Failure Costs
• Repair Costs
• Appraisal Costs
• Prevention Costs
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
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?
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?
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?
 Preventing Poor Quality Pays

Prevention Costs

Benefit
Appraisal Costs

$ Repair Costs Prevention Costs

Failure Costs Appraisal Costs

• Internal Repair Costs
• External Failure Costs

Before Quality After Quality

Cost Alignment Cost Alignment
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?
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
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
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
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
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
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
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
Examples
 “Cost of quality is …
the expense of nonconformance
–
the cost of doing things wrong.”
Thank
You