Page 159 - The Handbook for Quality Management a Complete Guide to Operational Excellence

146 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 147

role in development and maintenance of the cost of quality system is to
provide guidance and support to the accounting department.
The cost of quality system is an integrated subsystem of the larger cost
accounting system. Terminology, format, etc. should be consistent between
the cost of quality system and the larger system to speed the learning pro­
cess and reduce confusion. The ideal cost of quality accounting system
will simply aggregate quality costs to enhance their visibility to manage­
ment and facilitate efforts to reduce them. For most companies, this task
falls under the jurisdiction of the controller’s office.
Quality cost measurement need not be accurate to the penny to be
effective. The purpose of measuring such costs is to provide broad
guidelines for management decision making and action. The very nature
of cost of quality makes such accuracy impossible. In some instances it
will only be possible to obtain periodic rough estimates of such costs as
lost customer goodwill, cost of damage to the company’s reputation, etc.
These estimates can be obtained using special audits, statistical sampling,
and other market studies. These activities can be jointly conducted by
teams of marketing, accounting, and quality personnel. Since these costs
are often huge, these estimates must be obtained. However, they need not
be obtained every month. Annual studies are usually sufficient to indicate
trends in these measures.
Quality cost management helps firms establish priorities for corrective
action. Without such guidance, it is likely that firms will misallocate their
resources, thereby getting less than optimal return on investment. If such
experiences are repeated frequently, the organization may even question
or abandon their quality cost reduction efforts. The most often used tool
in setting priorities is Pareto analysis. Typically employed at the outset of
the quality cost reduction effort, Pareto analysis is used to evaluate failure
costs to identify those “vital few” areas in most need of attention. Docu­
mented failure costs, especially external failure costs, almost certainly
understate the true cost and are highly visible to the customer. Pareto
analysis is combined with other quality tools, such as control charts and
cause­and­effect diagrams, to identify the root causes of quality problems.
Of course, the analyst must constantly keep in mind the fact that most
costs are hidden. Pareto analysis cannot be effectively performed until
the hidden costs have been identified. Analyzing only those data easiest
to obtain is an example of the GIGO (garbage­in, garbage­out) approach to
analysis.
After the most significant failure costs have been identified and
brought under control, appraisal costs are analyzed. Are we spending too
much on appraisal in view of the lower levels of failure costs? Here qual­
ity cost analysis must be supplemented with risk analysis to assure that
failure and appraisal cost levels are in balance. Appraisal cost analysis is
also used to justify expenditure in prevention costs.

08_Pyzdek_Ch08_p137-150.indd 146 11/9/12 5:10 PM