The Cost Of Quality

To verify that a product or service meets the customer's requirements requires the measurement of the costs of quality. For simplicity's sake, the costs can be classified as "the cost of conformance" and "the cost of nonconformance." Conformance costs include items such as training, indoctrination, verification, validation, testing, maintenance, calibration, and audits. Nonconforming costs include items such as scrap, rework, warranty repairs, product recalls, and complaint handling.

Trying to save a few project dollars by reducing conformance costs could prove disastrous. For example, an American company won a contract as a supplier of Japanese parts. The initial contract called for the delivery of 10,000 parts. During inspection and testing at the customer's (i.e., Japanese) facility, two rejects were discovered. The Japanese returned all 10,000 components to the American supplier stating that this batch was not acceptable. In this example, the nonconformance cost could easily be an order of magnitude greater than the conformance cost. The moral is clear: Build it right the first time.

Another common method to classify costs includes the following:

• Prevention costs are the up-front costs oriented toward the satisfaction of customer's requirements with the first and all succeeding units of product produced without defects. Included in this are typically such costs as design review, training, quality planning, surveys of vendors, suppliers, and subcontractors, process studies, and related preventive activities.

• Appraisal costs are costs associated with evaluation of product or process to ascertain how well all of the requirements of the customer have been met. Included in this are typically such costs as inspection of product, lab test, vendor control, in-process testing, and internal-external design reviews.

• Internal failure costs are those costs associated with the failure of the processes to make products acceptable to the customer, before leaving the control of the organization. Included in this area are scrap, rework, repair, downtime, defect evaluation, evaluation of scrap, and corrective actions for these internal failures.

• External failure costs are those costs associated with the determination by the customer that his requirements have not been satisfied. Included are customer returns and allowances, evaluation of customer complaints, inspection at the customer, and customer visits to resolve quality complaints and necessary corrective action.

Figure 20-6 shows the expected results of the total quality management system on quality costs. Prevention costs are expected to actually rise as more time is spent in prevention activities throughout the organization. As processes improve over the long run, appraisal costs will go down as the need to inspect in quality decreases. The biggest savings

The Cost of Quality

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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