Measuring the cost of quality

– Peter Drucker, the father of modern management, believed that if you can’t measure something, you can’t improve it. That makes sense because the measurement itself gives you the starting point for your improvement project. But how do you measure a quality program? A really good method is to measure the cost of quality. This is the money you spend to prevent poor quality from happening in the first place, plus the cost of any quality problems you run into. You can sum up these costs in a few ways. The first is the cost of prevention. This is the cost of training, planning, designing quality materials and processes, and forming problem solving teams and other activities like this. Second is appraisal cost. This is the cost of inspection and testing to ensure your product does what it’s supposed to do. Money spent on prevention and appraisal will reduce the number of failures. For example, an investment in training programs should decrease the cost of repairing and replacing products that don’t work. Which leads us to the third quality: internal failures, which are failures discovered before the product is delivered to your customer. This creates reworked or scrapped material which directly impacts your ability to deliver customer orders on time. To reduce reworks and scraps, many companies apply the lean principle of quality at the source. Employees inspect their own work as each item is completed. This way, problems are found and fixed immediately and internal failures are minimized. The last cost of quality is external failures, failures that occur after the product or service is delivered. This is often called a failure in the field and is clearly the highest cost category. You not only have to replace the defective product, you also have to manage the returns process to make that happen. To help prevent external failures, you must closely manage your suppliers. Quality issues there can cause serious business problems. We’ve all heard about car companies with safety issues that caused massive product recalls. Excessive levels of external failures can lead to customer relationship issues and ultimately to a loss of market share. It makes sense to spend lots of resources in the first three categories to try to prevent external failures entirely. When you look at your organization’s cost of quality, that’s where you should start. Collect data on external failures like customer service complaints or customer product returns. What’s the most common reason for these failures? The key to eliminating this cause might be found in how you’re currently managing prevention, appraisal, and internal failures. appraisal, and internal failures.