Cost of Quality

Dr. Abdalla Ibrahim MBA, MSc

Certified Healthcare Surveyor

Certified Accreditation Specialist

Objectives

• Identify different forms of Cost of Quality

• Identify the Quality Control Coat:

– Preventive Coast

– Appraisal Cost

• Identify quality failure coast:

– Internal failure cost

– External failure cost

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Cost of Quality

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Cost of Quality • The reason quality has gained such

prominence is that organizations have gained an understanding of the high cost of poor quality.

• Quality affects all aspects of the organization and has dramatic cost implications.

• The most obvious consequence occurs when poor quality creates dissatisfied customers and eventually leads to loss of business.

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Cost of Quality

•prevention costs

•appraisal costs

Quality Control Costs

costs necessary for achieving high quality

• internal failure costs

•external failure costs

Quality Failure Costs

cost consequences of poor quality

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Prevention costs • Costs incurred in the process of preventing

poor quality from occurring. They include Costs of:

Quality Planning

( costs of developing and implementing a

quality plan)

Product and Process Design (from collecting customer information to designing processes that achieve conformance to specifications).

Employee Training in quality

measurement

Maintaining records

of information and data related to

quality.

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Appraisal costs

• Appraisal is the act or result of judging the worth or value of something or someone.

• Appraisal costs are incurred in the process of uncovering defects.

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Appraisal costs

• Appraisal costs include the cost of:

quality inspections

product testing

performing audits to

meet quality

standards

worker time spent measuring

quality

equipment used for quality

appraisal

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Internal Failure Costs Internal failure costs

• associated with discovering poor product quality before the product reaches the customer site

Rework

• the cost of correcting the defective item

Scrap

• defective that cannot be corrected and must be thrown away.

• costs include all the material, labor, and machine cost spent in producing the defective product.

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Internal Failure Costs

• Other types of internal failure costs include:

cost of machine downtime due to failures in the process

costs of discounting defective items for recover value

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External Failure Costs

• External failure costs are associated with quality problems that occur at the customer site.

• These costs can be particularly damaging because customer faith and loyalty can be difficult to regain.

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External failure costs include:

customer complaints

product returns

Repair

warranty claims

recalls

litigation costs resulting from product liability issues.

lost sales and lost customers

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Examples of External failure costs

Bacterial contamination in some products made by Blue Bell Creameries,, after reports of three deaths

in a Kansas Hospital have had to struggle to

regain consumer confidence

Auto manufacturers whose products have been recalled due to major malfunctions such as problematic acceleration systems

Airlines that have experienced a crash with

many fatalities.

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Early Defect Detection

• Companies that consider quality important invest heavily in Quality Control: prevention and appraisal costs in order to prevent internal and external failure costs.

• The earlier defects are found, the less costly they are to correct.

• For example, detecting and correcting defects during product design and product production is considerably less expensive than when the defects are found at the customer site.

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External failure in services business

• External failure costs tend to be particularly high for service organizations.

• The reason is that with a service the customer spends much time in the service delivery system, and there are fewer opportunities to correct defects than there are in manufacturing.

• Examples of external failure in services include an AIRLINE that has overbooked flights, long delays in airline service, and lost luggage.

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Any Question

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