Page 155 - The Handbook for Quality Management a Complete Guide to Operational Excellence

142 I n t e g r a t e d P l a n n i n g O r g a n i z a t i o n a l A s s e s s m e n t 143

Learning and growth. Metrics in this category might focus on the total
deliv erables (in dollars saved) from continuous improvement projects,
new product or service development times, improvements in employee
perspective or quality culture, revenue or market share associated with
new product, and so on.
Financial. Many suitable financial metrics are available and widely
tracked, including revenue, profitability, market share, and so on. Cost
of quality, discussed in the next section, is also recommended.

Cost of Quality
The history of evaluating the cost of quality (sometimes referred to as the
cost of poor quality) dates to the first edition of Juran’s QC Handbook in 1951.
Today, quality cost accounting systems are part of every modern organi­
zation’s quality improvement strategy. Indeed, quality cost accounting
and reporting are part of many quality standards. Quality cost systems
help management plan for quality improvement by identifying opportu­
nities for greatest return on investment. However, the quality manager
should keep in mind that quality costs address only half of the quality
equation. The quality equation states that quality consists of doing the
right things and not doing the wrong things. “Doing the right things”
implies developing product and service features that satisfy or delight the
customer. “Not doing the wrong things” means avoiding defects and
other behaviors that cause customer dissatisfaction. Quality costs address
only the latter aspect of quality. It is conceivable that a firm could drive
quality costs to zero and still go out of business.
The fundamental principle of the cost of quality is that any cost that
would not have been expended if quality were perfect is a cost of quality.
This includes such obvious costs as scrap and rework, but it also includes
many costs that are far less obvious, such as the cost of reordering to
replace defective material. Service businesses also incur quality costs; for
example, a hotel incurs a quality cost when room service delivers a miss­
ing item to a guest. Specifically, quality costs are a measure of the costs
specifically associated with the achievement or nonachievement of prod­
uct or service quality—including all product or service requirements
established by the company and its contracts with customers and society.
Requirements include marketing specifications, end­product and pro­
cess specifications, purchase orders, engineering drawings, company
procedures, operating instructions, professional or industry standards,
government regulations, and any other document or customer needs that
can affect the definition of product or service. More specifically, quality
costs are the total of the cost incurred by (a) investing in the prevention
of nonconformances to requirements, (b) appraising a product or service
for conformance to requirements, and (c) failure to meet requirements
(see Fig. 8.1).

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