Saturday, August 23, 2008

The Costs of Project Quality

According to Leon M. Cautillo, "The bitterness of poor quality remains long after low pricing is forgotten!" Therefore, it is important for project managers to understand the cost of quality and the types of costs associated with it.

The cost of quality refers to the total cost of all the processes that are involved in producing a quality product or service. This includes costs that ensure all specified requirements are met, as well as the costs of nonconformance to those requirements. There are three types of costs associated with quality.

1. Prevention
Prevention costs are those costs associated with planning and implementing the project so that it is error-free. Prevention costs are an investment in quality, as they help the project manager ensure that the project is done right the first time. This helps reduce project rework or revisions.

It is cost-effective to find and fix product defects before they reach the customer. When planning, 70 percent of the total cost of quality should be focused on prevention. For example, you can include the costs of staff training, process studies, and vendor surveys in your prevention costs, since all of these can help you ensure project quality.

2. Appraisal
Appraisal costs are the second type of quality cost. These costs are associated with evaluating the working processes and the product to determine how well they will meet customer needs. Ideally, appraisal costs should make up approximately 15 percent of the total cost of quality.

There are many types of appraisal costs, including inspection and testing, maintenance of test equipment, and various types of design reviews, which are described below.
  • Internal design reviews. These reviews are carried out within the company by its own employees. They check to make sure that processes and products meet the specified quality requirements.
  • External design reviews. These reviews are performed by people outside the company. The findings are reported to company officials.
  • Walk-through design reviews. These design reviews check the quality of the products coming off the line. The findings of these spot checks are used to correct quality problems.
  • Expense design reviews. These reviews compare the project budget with the actual costs and are important for future project budgeting.
3. Failure
The last type of cost associated with quality assurance is failure costs. These are incurred when a product does not meet customer requirements. Failure costs can be internal or external.
  • Internal failure costs are the costs incurred to correct product defects before they reach the customer.
  • External failure costs are the costs incurred to correct product defects that were not detected before reaching the customer.
In an ideal situation, internal failure costs should make up 10 percent of the total cost of quality, while external failure costs should make up only five percent.

There are many factors that contribute to the preparation and delivery of a quality product. When planning for the cost of quality, remember to include all the types of quality costs—prevention, appraisal, internal failure, and external failure. Keep in mind that it is cost-effective to find and fix any defects in a product before it reaches the hands of the consumer.

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