Cost of Business

Cost of Business

Cost of Quality

Advisory Services for Customised Deployment of Cost of Business Quality
We customize the whole Cost of Quality concept according to the organization present structure and future needs.
The main objectives are:
  • Quantifying the Quality of running a business in term of money
  • Major Opportunity of Cost Reduction
  • Opportunity of reducing customer dissatisfaction
  • Method of Assessing overall effectiveness of Management of Business Quality
  • A means of identifying the priority areas for management Focus.
Goal of a Quality Cost System
The goal of any quality cost system is to facilitate quality improvement efforts that will lead to operating cost reduction opportunities. Our strategy for using quality costs – 1) directly attack failure costs in an attempt to drive them to zero; 2) invest in the right prevention activities to bring about improvement; 3) reduce appraisal costs according to results achieved; and 4) continuously evaluate and redirect prevention efforts to gain further improvement.

This strategy is based on the premise that:
  • For each failure there is a root cause.
  • Causes are preventable
  • Prevention is always cheaper
Business Quality/Accounting Interface
Most accounting systems are never designed to demonstrate the impact of the quality of performance (thought to be subjective measurement) on overall operating costs. That is why many of these costs remain hidden for very long.
  • We will check to see if identification and capture of quality costs is comprehensive and whether the collection and reporting of quality costs is designed in conjunction with the basic company cost accounting system.
  • If large elements of quality costs are incurred but not accurately identified within the cost accounting system, we will recommend that estimates be used until the system can be adjusted.
  • We strongly advocate that the responsibility for quality cost collection, compilation, and reporting be a function of the controller’s office- as a service to the quality management function. Holding the controller responsible for quality cost measurement will establish important standards for the quality cost program.
  • If all significant quality costs are captured and utilized, the objective of the quality accounting interface – quality cost improvement - can be justified and accomplished. Consistency and integrity will be emphasized. Comparisons with others are not of much use; comparison with your own past performance is what really matters. Incremental improvements in quality costs are what counts and therefore what one must strive for.
Management of Quality Costs
We strongly believe that a quality cost system has the potential to become an excellent tool in the overall management of a business. It can provide an indication of the health of management performance in many areas of a company. Our approach
  • Will demonstrate the payoff from corrective actions the company could realize.
  • Will analyze the need for current appraisal costs. Are you taking too high a risk of excessive failure costs by not having a sufficient appraisal program? Or are you spending too much for appraisal, especially considering the improved levels of performance you have achieved ?
  • Will determine if prevention has been applied correctly and not just evenly across the board. How much more improvement can be achieved through reallocation of prevention efforts from areas having little effect to areas where it really pays off ?

We emphasize that the quality cost program be kept simple and practical- it will support the initiative to improve quality in all operations.
Quality Cost Program Implementation
Implementation of a good quality cost program requires an advocate and champion within the organization. The champion will be assisted by us in developing an overall plan and schedule for quality cost program implementation. Essential ingredients of the plan shall include:
  • The management presentation, designed to identify the overall opportunity, show an example of how the program will achieve its benefits, and obtain management acceptance and support for the implementation plan and schedule.
  • Conduct of the planned pilot program.
  • Education of all functions to develop awareness and interest in participation in the quality cost program.
  • Development of the internal quality cost accounting procedure.
  • Overall collection and analysis of quality cost data.
  • Quality cost reporting and uses (integration with the quality management system and quality improvement program).
Quality Costs and the Strategic Business Plan
The strategic planning process involves, in general, a review and analysis of past performance and present position; establishment of business objectives based on actual current or anticipated conditions; selection of specific, strategic action plans to achieve the objectives; and the implementation and monitoring phase. Our approach will emphasize on:
  • The quality function’s role in analyzing quality costs and using this information gained to provide inputs for setting objectives.
  • Assisting other functions to ensure that costs related to quality are included in their analyses for setting objectives.
  • Developing an overall quality strategic plan which incorporates all functional Business objectives.
Quality Costs and the Profit Center
Quality costs for a profit center consist of costs incurred in several activities. There is a buildup of costs from all functional departments into an overall quality cost for the entire profit center.

The comprehensive way in which we tackle this subject will force careful analysis to find the most costly problems and identify programs and action plans to attack them.
EBS Approach for Deployment of Cost of Quality: –
EBS Focus on Eight key areas while supporting clients:
  1. Detailed Study of the overall activities of every department and identifying same to various category of COQ
  1. Establishment of Cost of Quality
  • Prevention Cost - Personnel Cost and Other Cost
  • Appraisal Cost – Personnel Cost, Equipment depreciation cost and other cost
  • Internal Failure Cost
  • External Failure Cost
  1. Establishing the Mechanism of Collecting the data
  • How effective compilation of data to be done as per defined strategy
  • Correct location of data capturing point
  1. Defining criteria for benchmarking and conducting a effective benchmarking study for each points of cost of quality.
  1. Identifying Various Projects for improvements and deployment through Six Sigma Projects or Lean concepts across the company
  1. Holding the Gain and Standardization of approach for COQ
  1. Linkage of COQ results to Performance management System (KRA and KPI)
  1. Audit Cost of Quality at regular Interval and Report details to Management in MRM

EBS got its own defined methodology for evaluating a organization under above 8 category.