Measuring the Cost of Quality
I've never seen an organization market itself as low cost/low quality. That seems like a losing strategy. But can all the organizations that market themselves as low cost/high quality back up that claim? How does an organization know that it's actually achieving higher quality and saving money while costing consumers less? Can an organization really keep its prices low and its quality high? Can leaders track how well they are accomplishing this? Can your organization honestly say that it is the "best value" based on prices, costs, and quality levels?
Some organizations are trying to—by measuring quality throughout their businesses. APQC's Using Enterprise Quality Measurement to Drive Business Value report examines four organizations that are developing new and innovative systems for measuring quality: Altera Corporation, Caterpillar Inc., Chemonics International, Textron Inc. Check the report out today if you haven't already.
One thing the report revealed is that organizations have a difficult time coming up with a total cost of quality metric. Although we detail several calculations organizations are currently using in the report, these calculations are far from consistent. Yes, cost of quality will be calculated differently for every organization, but it would certainly help to develop some norms and standards that organizations can use to build their cost of quality calculations. What are some of the building blocks you use for your cost of quality metric? How important is a total cost of quality metric to managing enterprise-wide processes? Comment below.