Corporate Risk Management, 2nd Edition

13

Quality Related Risks

13.1 INTRODUCTION

Quality management is a philosophy that seeks to prevent defects in products or services rather than relying on inspection to sort out defects after they occur. Therefore, improper implementation of quality management or lack of it leads to many quality problems which then lead to quality risks. Many organisations use a quality management system (QMS) to mitigate risks, particularly risks inherent in the organisation. Many risks are in fact not risks but bad practice. Bad practice by definition is a risk in itself. A QMS helps create best practice and thus reduces many inherent risks and the risk of not meeting customer expectation.

13.2 DEFINING QUALITY RISKS

Risk refers to a lack of predictability about a problem structure, outcome or consequences in a decision or planning situation (Hertz and Thomas 1984). Quality risk has been defined as the potentiality that a product or service will not meet a consumer’s minimum quality standards (Peterson and Wilson 1985).

Quality risks of products and services are often counted as operational risks. Operational risk is defined as the weakness or fallacies in the organisational processes and transactions (Ruin 2001). Managing operational risks not only ensures the comfort that the desired product or service is achieved, but also ensures that the required product or service is constantly of the quality that an organisation can boast of, for customer satisfaction and value for money.

Quality ...