According to the American Society of Quality (ASQ), the cost of quality is the price of not creating a product or service. In other words, the calculation measures the waste or losses associated with producing a poor quality product. Costs rise when rework, retesting, or rebuilding happens, as the extra time spent fixing a product or service increases the associated costs.
APQC’s Best Practices Study Using Enterprise Quality Measurement to Drive Business Value found that among the 21 study participants, quality measures have:
- no standard definition,
- no standard components, and
- no common calculation.
Many times, organizations don’t calculate the cost of quality because they are unsure of how to best approach it, and very few have elevated this issue to an enterprise-wide concern. Yet the demand for this type of measure remains high: Organizations want to be able to calculate and benchmark the cost of quality.
Of the groups who participated in this APQC study, 11 had measures to capture the cost of quality for their organizations. The Sample Cost of Quality Calculations offers six of these different calculations. One company focuses on three distinct areas: rework, scrap, and customer quality related returns; another uses nonconformance to guide this process. Still another uses returns and allowances divided by gross sales.
These differences in approach lead to several questions:
- Why is cost of quality so challenging?
- What factors are relevant in this calculation? How do you calculate it?
- What can organizations do to promote calculating the cost of quality?
Weigh in. What are your thoughts?