Page 160 - 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

Prevention costs of quality are investments in the discovery, incorpo­
ration, and maintenance of defect prevention disciplines for all operations
affecting the quality of product or service (Campanella, 1990). As such,
prevention needs to be applied correctly and not evenly across the board.
Much improvement has been demonstrated through reallocation of pre­
vention effort from areas having little effect to areas where it really pays
off; once again, the Pareto principle in action. Examples of categorized
quality costs are provided in Table 8.2.
Analyzing quality costs requires a suitable base, so that the quality cost
is analyzed as a percent of an appropriate base: Generally, a suitable base is
related to quality costs in a meaningful way, well known to the managers
who will review the quality cost reports, and a measure of business volume
in the area where quality cost measurements are to be applied.
Several bases are often necessary to get a complete picture of the
relative magnitude of quality costs. Some commonly used bases are
(Campanella, 1990, p. 26):

• A labor base (such as total labor, direct labor, or applied labor)
• A cost base (such as shop cost, operating cost, or total material and
labor)
• A sales base (such as net sales billed, or sales value of finished
goods)
• A unit base (such as the number of units produced, or the volume
of output)
While actual dollars spent is usually the best indicator for determining
where quality improvement projects will have the greatest impact on
profits and where corrective action should be taken, unless the production
rate is relatively constant, it will not provide a clear indication of quality
cost improvement trends. Since the goal of the cost of quality program is
improvement over time, it is necessary to adjust the data for other time­
related changes such as production rate, inflation, etc. Total quality cost
compared to an applicable base results in an index that may be plotted
and analyzed using statistical control charts.
For long­range analyses and planning, net sales is the base most often
used for presentations to top management (Campanella, 1990, p. 24). If
sales are relatively constant over time, the quality cost analysis can be
performed for relatively short spans of time. In other industries this
figure must be computed over a longer time interval to smooth out large
swings in the sales base. For example, in industries such as shipbuilding
or satellite manufacturing, some periods may have no deliveries, while
others have large dollar amounts. It is important that the quality costs
incurred be related to the sales for the same period. Consider the sales as
the “opportunity” for the quality costs to happen.

08_Pyzdek_Ch08_p137-150.indd 147 11/9/12 5:10 PM