Quality costing is not an exercise which is going to solve organisational problems or have an impact on performance. Quality costing can be considered as a means to an end, to help improve quality and help companies reach their quality targets. Quality costing is a process-related exercise rather than for product control. Process effectiveness is however not constant and can be improved upon. Opportunities for improvement depend on process capability studies and information provided by process costing.
Intention of quality costing:
'Quality cost systems are used as an aid in setting priorities for quality improvement projects, studying cost trends to re-allocated resources, focusing multistep operations, measuring performance, and balancing efforts in reducing variation in design versus manufacturing. Measurements don't solve problems but can spur beneficial action.'
Approaches of quality costing:
There are two approaches to quality costing:
(i) The traditional model or PAF mode1 where the pattern of quality costing includes
Prevention, Appraisal and Failure: These tend to decrease as quality improvement becomes more and more an integral part of business operations. PAF costs include the following:
Prevention costs: Costs of quality systems, quality training and education;
Appraisal costs: Costs of performing quality inspection and audits in-house as well as audits of suppliers;
Failure costs (external): Costs associated with failures discovered outside the plant. These affect both cost and reputation;
Failure costs (internal): Costs associated with failures discovered inside the plant.
(ii) Process-based costing: A more radical approach to costing is one which considers the Cost of Quality (COQ) to be made up of two distinct components: - the price of conformance (Prevention and Appraisal) and the price of nonconformance (Failure cost)
Process modeling leads to a good understanding of how a process functions in its present state. By identifying different variables, costs can be placed under categories such as people, equipment, materials and environment. The costs are allocated according to whether they enable the process to be 100% effective (Cost of Conformance = COC) or whether the cost is linked to an attributable variable that is causing the process to be ineffective (Cost of Non-Conformance = CONC).
- Process effectiveness is however not constant and can be improved upon. Opportunities for improvement depend on process capability studies and information provided by process costing.
- Process modeling for costing purposes is compatible with the ethos of TQM, which places emphasis on process ownership, understanding, control and improvement.