Cost of quality management

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I. Contents of cost of quality management
==================
In our discussion of the cost of quality subsystem, we emphasized the importance of not creating
a unique accounting system. The same holds true when discussing management of quality costs.
Quality cost management should be part of the charter of the senior level cross-functional cost
management team. It is one part of the broader business effort to control costs. However, in all
likelihood, the business will find that quality cost reduction has greater potential to contribute to
the bottom line than the reduction of other costs. This is so because, unlike other costs, quality
costs are waste costs (Pyzdek, 1976). As such, quality costs contribute no value to the product or
service purchased by the customer. Indeed, quality costs are often indicators of negative
customer value. The customer who brings his car in for a covered warranty expense suffers
uncompensated inconvenience, the cost of which is not captured by most quality cost systems
(although, as discussed above, we recommend that such costs be estimated from time-to-time).
All other costs incurred by the firm purchase at least some value.
Effective cost of quality programs consist of taking the following steps (Campanella, 1990, p.
34):
· Establish a quality cost measurement system
· Develop a suitable long-range trend analysis

· Establish annual improvement goals for total quality costs
· Develop short-range trend analyses with individual targets which, when combined, meet
the annual improvement goal
· Monitor progress towards the goals and take action when progress fallsshort of targets
The tools and techniques described in chapter V are useful for managing cost of quality
reduction projects.
Quality cost management helps firms establish priorities for corrective action. Without such
guidance, it is likely that firms will misallocate their resources, thereby getting less than optimal
return on investment. If such experiences are repeated frequently, the organization may even
question or abandon their quality cost reduction efforts. The most often-used tool in setting
priorities is Pareto analysis (see above). Typically at the outset of the quality cost reduction
effort, Pareto analysis is used to evaluate failure costs to identify those “vital few” areas in most
need of attention. Documented failure costs, especially external failure costs, almost certainly
understate the true cost and they are highly visible to the customer. Pareto analysis is combined
with other quality tools, such as control charts and cause-and-effect diagrams, to identify the root
causes of quality problems. Of course, the analyst must constantly keep in mind the fact that
most costs are hidden. Pareto analysis cannot be effectively performed until the hidden costs
have been identified. Analyzing only those data easiest to obtain is an example of the GIGO
(garbage-in, garbage-out) approach to analysis.
After the most significant failure costs have been identified and brought under control, appraisal
costs are analyzed. Are we spending too much on appraisal in view of the lower levels of failure
costs? Here quality cost analysis must be supplemented with risk analysis to assure that failure
and appraisal cost levels are in balance. Appraisal cost analysis is also used to justify expenditure
in prevention costs.
Prevention costs of quality are investments in the discovery, incorporation, and maintenance of
defect prevention disciplines for all operations affecting the quality of product or service
(Campanella, 1990). As such, prevention needs to be applied correctly and not evenly across the
board. Much improvement has been demonstrated through reallocation of prevention effort from
areas having little effect to areas where it really pays off; once again, the Pareto principle in
action.
==================

III. Quality management tools
1. Check sheet
The check sheet is a form (document) used to collect data
in real time at the location where the data is generated.
The data it captures can be quantitative or qualitative.
When the information is quantitative, the check sheet is
sometimes called a tally sheet.
The defining characteristic of a check sheet is that data
are recorded by making marks ("checks") on it. A typical
check sheet is divided into regions, and marks made in
different regions have different significance. Data are
read by observing the location and number of marks on
the sheet.
Check sheets typically employ a heading that answers the
Five Ws:
 Who filled out the check sheet
 What was collected (what each check represents,
an identifying batch or lot number)
 Where the collection took place (facility, room,
apparatus)
 When the collection took place (hour, shift, day
of the week)
 Why the data were collected
2. Control chart
Control charts, also known as Shewhart charts
(after Walter A. Shewhart) or process-behavior
charts, in statistical process control are tools used
to determine if a manufacturing or business
process is in a state of statistical control.
If analysis of the control chart indicates that the
process is currently under control (i.e., is stable,
with variation only coming from sources common

to the process), then no corrections or changes to
process control parameters are needed or desired.
In addition, data from the process can be used to
predict the future performance of the process. If
the chart indicates that the monitored process is
not in control, analysis of the chart can help
determine the sources of variation, as this will
result in degraded process performance.[1] A
process that is stable but operating outside of
desired (specification) limits (e.g., scrap rates
may be in statistical control but above desired
limits) needs to be improved through a deliberate
effort to understand the causes of current
performance and fundamentally improve the
process.
The control chart is one of the seven basic tools of
quality control.[3] Typically control charts are
used for time-series data, though they can be used
for data that have logical comparability (i.e. you
want to compare samples that were taken all at
the same time, or the performance of different
individuals), however the type of chart used to do
this requires consideration.
3. Pareto chart
A Pareto chart, named after Vilfredo Pareto, is a type
of chart that contains both bars and a line graph, where
individual values are represented in descending order
by bars, and the cumulative total is represented by the
line.
The left vertical axis is the frequency of occurrence,
but it can alternatively represent cost or another
important unit of measure. The right vertical axis is
the cumulative percentage of the total number of
occurrences, total cost, or total of the particular unit of
measure. Because the reasons are in decreasing order,
the cumulative function is a concave function. To take
the example above, in order to lower the amount of
late arrivals by 78%, it is sufficient to solve the first
three issues.

The purpose of the Pareto chart is to highlight the
most important among a (typically large) set of
factors. In quality control, it often represents the most
common sources of defects, the highest occurring type
of defect, or the most frequent reasons for customer
complaints, and so on. Wilkinson (2006) devised an
algorithm for producing statistically based acceptance
limits (similar to confidence intervals) for each bar in
the Pareto chart.
4. Scatter plot Method
A scatter plot, scatterplot, or scattergraph is a type of
mathematical diagram using Cartesian coordinates to
display values for two variables for a set of data.
The data is displayed as a collection of points, each
having the value of one variable determining the position
on the horizontal axis and the value of the other variable
determining the position on the vertical axis.[2] This kind
of plot is also called a scatter chart, scattergram, scatter
diagram,[3] or scatter graph.
A scatter plot is used when a variable exists that is under
the control of the experimenter. If a parameter exists that
is systematically incremented and/or decremented by the
other, it is called the control parameter or independent
variable and is customarily plotted along the horizontal
axis. The measured or dependent variable is customarily
plotted along the vertical axis. If no dependent variable
exists, either type of variable can be plotted on either axis
and a scatter plot will illustrate only the degree of
correlation (not causation) between two variables.
A scatter plot can suggest various kinds of correlations
between variables with a certain confidence interval. For
example, weight and height, weight would be on x axis
and height would be on the y axis. Correlations may be
positive (rising), negative (falling), or null (uncorrelated).
If the pattern of dots slopes from lower left to upper right,
it suggests a positive correlation between the variables

being studied. If the pattern of dots slopes from upper left
to lower right, it suggests a negative correlation. A line of
best fit (alternatively called 'trendline') can be drawn in
order to study the correlation between the variables. An
equation for the correlation between the variables can be
determined by established best-fit procedures. For a linear
correlation, the best-fit procedure is known as linear
regression and is guaranteed to generate a correct solution
in a finite time. No universal best-fit procedure is
guaranteed to generate a correct solution for arbitrary
relationships. A scatter plot is also very useful when we
wish to see how two comparable data sets agree with each
other. In this case, an identity line, i.e., a y=x line, or an
1:1 line, is often drawn as a reference. The more the two
data sets agree, the more the scatters tend to concentrate in
the vicinity of the identity line; if the two data sets are
numerically identical, the scatters fall on the identity line
exactly.
5.Ishikawa diagram
Ishikawa diagrams (also called fishbone diagrams,
herringbone diagrams, cause-and-effect diagrams, or
Fishikawa) are causal diagrams created by Kaoru
Ishikawa (1968) that show the causes of a specific
event.[1][2] Common uses of the Ishikawa diagram are
product design and quality defect prevention, to identify
potential factors causing an overall effect. Each cause or
reason for imperfection is a source of variation. Causes
are usually grouped into major categories to identify these
sources of variation. The categories typically include
 People: Anyone involved with the process
 Methods: How the process is performed and the
specific requirements for doing it, such as policies,
procedures, rules, regulations and laws
 Machines: Any equipment, computers, tools, etc.
required to accomplish the job
 Materials: Raw materials, parts, pens, paper, etc.
used to produce the final product
 Measurements: Data generated from the process
that are used to evaluate its quality

 Environment: The conditions, such as location,
time, temperature, and culture in which the process
operates
6. Histogram method
A histogram is a graphical representation of the
distribution of data. It is an estimate of the probability
distribution of a continuous variable (quantitative
variable) and was first introduced by Karl Pearson.[1] To
construct a histogram, the first step is to "bin" the range of
values -- that is, divide the entire range of values into a
series of small intervals -- and then count how many
values fall into each interval. A rectangle is drawn with
height proportional to the count and width equal to the bin
size, so that rectangles abut each other. A histogram may
also be normalized displaying relative frequencies. It then
shows the proportion of cases that fall into each of several
categories, with the sum of the heights equaling 1. The
bins are usually specified as consecutive, non-overlapping
intervals of a variable. The bins (intervals) must be
adjacent, and usually equal size.[2] The rectangles of a
histogram are drawn so that they touch each other to
indicate that the original variable is continuous.[3]
III. Other topics related to cost of quality management (pdf download)
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