by Dr. Gordon D. Booth
Many who have not been familiar with the terminology of Quality are somewhat confused by the term "Cost of Quality." Some believe that it refers to the cost incurred to maintain a quality product while others believe it is the cost incurred by having a product of poor quality. In reality, the term cost of quality arose as companies began to feel the need to evaluate the cost of the quality function within the organization.
Juran states that ". . . the term 'quality costs' is associated solely with defective product--the costs of making , finding, repairing, or avoiding defects. The costs of making good products are not a part of quality costs." He goes on to specify three basic types of quality costs: (1) failure costs which can occur either before the product is received by the customer or after, (2) appraisal costs which are incurred as an organization tries to discover the condition of the product, and (3) prevention costs which occur as an organization tries to keep the first two types of costs to a minimum.
Deming would not agree fully with the description given by Juran. While he would probably agree that the three types of quality costs defined by Juran are real, Deming says that the greatest costs are unknown and unknowable. He referred to the costs of customer dissatisfaction and alienation from the company. It is difficult to determine the cost of a disgruntled customer. That customer will likely never feel comfortable dealing with the offending company again. In addition, the unhappy ex-customer will often tell many others of the level of dissatisfaction--maybe even making the problem bigger in the telling than it ever was in reality. The loss of potential new customers and the loss of already-existing customers can be huge. Market share can become stagnant or can even shrink--all of this at a time when the wish is to increase market share.
Even if we ignore the potentially huge losses described by Deming, the three types of quality costs given by Juran are often dealt with in the wrong way by managers. Some managers either do not understand the long-term consequences of their decisions or they purposely make short-term decisions that will benefit themselves personally more than they benefit the company itself.
A common mistake made by management is to place most quality-related emphasis on the first two types of quality costs and to reduce the size of the quality effort that is directed toward prevention. This often takes the form of reducing the number of personnel who work in problem prevention. Sometimes the quality department is made too small to function or is given insufficient power to do their job. In other situations, where the quality function does not reside in a single quality department, the reduction takes place by eliminating those jobs that are quality related within most departments in the organization.
The results of failing to understand the long-term consequences of decisions can lead to dramatic losses in revenue and in market share.