Managing Quality

Chapter 9. Quality Costing

B. G. Dale

Introduction

This chapter defines quality costs and explains why they are important to management. It also outlines how to determine, report and use quality-related costs.

Ideas of what constitute quality costs have changed rapidly in recent years. Whereas only a few years ago the costs of quality were perceived as the cost of running the quality assurance department and the laboratory, plus scrap and warranty costs, it is now widely accepted that they are the costs incurred in designing, implementing, operating and maintaining a quality management system, the costs involved in introducing and sustaining a process of continuous improvement, plus the costs incurred owing to failures of systems, processes, products and/or services. Quality costs arise from a range of activities: for example, the functions of sales and marketing, design, research and development, purchasing, storage, handling, production planning and control, production/operations, delivery, installation and service make, in some way, a contribution to these costs. Suppliers, subcontractors, stockists, distributors, agents, dealers, and especially customers can all influence the incidence and level of these costs.

Quality-related costs commonly range from 5 to 25 per cent of a company's annual sales turnover or operating costs in public sector-type operations, depending on the 'industry' and the way in which the company manages quality and the improvement process. Ninety-five per cent ...