In process improvement efforts, quality costs or cost of quality (sometimes abbreviated CoQ or COQ) is a means to quantify the total cost of
quality
Quality may refer to:
Concepts
*Quality (business), the ''non-inferiority'' or ''superiority'' of something
*Quality (philosophy), an attribute or a property
*Quality (physics), in response theory
*Energy quality, used in various science discipli ...
-related efforts and deficiencies. It was first described by
Armand V. Feigenbaum in a 1956
Harvard Business Review
''Harvard Business Review'' (''HBR'') is a general management magazine published by Harvard Business Publishing, a not-for-profit, independent corporation that is an affiliate of Harvard Business School. ''HBR'' is published six times a year ...
article.
Prior to its introduction, the general perception was that higher quality requires higher costs, either by buying better materials or machines or by hiring more labor. Furthermore, while
cost accounting
Cost accounting is defined by the Institute of Management Accountants as "a systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services in the aggregate and in detail. It includ ...
had evolved to categorize financial transactions into revenues, expenses, and changes in shareholder equity, it had not attempted to categorize costs relevant to quality, which is especially important given that most people involved in manufacturing never set hands on the product. By classifying quality-related entries from a company's general
ledger
A ledger is a book or collection of accounts in which accounting transactions are recorded. Each account has:
* an opening or brought-forward balance;
*a list of transactions, each recorded as either a debit or credit in separate columns (usu ...
, management and quality practitioners can evaluate investments in quality based on cost improvement and profit enhancement.
Definitions
Feigenbaum defined the following quality cost areas:
The central theme of
quality improvement
Total Quality management (TQM), ensures that an organization, product, or service consistently performs as intended, as opposed to Quality Management, which focuses on work process and procedure standards. It has four main components: quality pla ...
is that larger investments in prevention drive even larger savings in quality-related failures and appraisal efforts. Feigenbaum's categorization allows the organization to verify this for itself. When confronted with mounting numbers of defects, organizations typically react by throwing more and more people into inspection roles. But inspection is never completely effective, so appraisal costs stay high as long as the failure costs stay high. The only way out of the predicament is to establish the "right" amount of prevention.
Once categorized, quality costs can serve as a means to measure, analyze, budget, and predict.
Variants of the concept of quality costs include
cost of poor quality and categorization based on account type, described by
Joseph M. Juran
Joseph Moses Juran (December 24, 1904 – February 28, 2008) was a Romanian-born American engineer, management consultant and author. He was an advocate for quality and quality management and wrote several books on the topics. He was the brother ...
.
ISO 9004
The ISO 9000 family is a set of international standards for Quality (business), quality management systems. It was developed in March 1987 by International Organization for Standardization. The goal of these standards is to help organizations en ...
also accounts for "external assurance" quality costs to account for customer– or government–required certifications (e.g., for
UL,
RoHS
The Restriction of Hazardous Substances Directive 2002/95/EC (RoHS 1), short for Directive on the restriction of the use of certain hazardous substances in electrical and electronic equipment, was adopted in February 2003 by the European Uni ...
, or even ISO 9000 itself).
Reporting
To ensure impartiality, reporting should be performed by the accounting department. Additionally, to make it more understandable to a wider audience, the total cost of quality should be reported as a percent of sales, cost of sales, cost of manufacturing, or for firms in the service industry, cost of operations.
See also
*
Activity-based costing
Activity-based costing (ABC) is a costing method that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each. Therefore, this model assigns more ind ...
*
Gold in the mine
*
Project triangle
*
Cost of poor quality
References
{{DEFAULTSORT:Quality Costs
Costs
Quality control