Uses of Quality Cost Information (Report):
Learning Objectives
of this article:
A quality cost report has
several uses. First quality cost information helps managers see the
financial significance of defects. Managers usually are not aware of the
magnitude of their quality costs because these costs cut across departmental
lines and are not normally tracked and accumulated by the cost system. Thus,
when first presented with a quality cost report, managers often are
surprised by the amount of cost attributable to poor quality.
Second quality cost information
helps managers identify the relative importance of the quality problems
faced by the firm. For example, the quality cost report may show that scrap
is a major quality problem or that the company is incurring huge warranty
costs. With this information, managers have a better idea of where to focus
efforts.
Third, quality cost information helps
managers see whether their quality costs are poorly distributed. In general,
quality costs should be distributed more toward prevention and appraisal
activities and less toward failures.
Limitations of Quality Cost Information:
Three limitations of quality cost information
should be recognized.
-
Simply measuring and reporting quality
costs does not solve quality problems. Problems can be solved by taking
actions.
-
Results usually lag behind quality
improvement programs. Initially quality cost may even increase as quality
control systems are designed and installed. Decrease in these costs may
not begin to occur until the quality program has been in effect for a year
or more.
-
The most important quality costs lost
sales arising from customers ill will, is usually omitted from the quality
cost report because it is difficult to estimate.
Typically during the initial years of a
quality improvement program, the benefits of compiling a quality cost report
outweigh the costs and limitations of the reports. As managers gain
experience in balancing prevention and appraisal activities, the need for
quality cost report often diminishes.
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