Paper
COQ Boman Moradian (compiled by Ms. Shalini Sadhwani) MMS student at JBIMS
Cost of quality = Price of nonconformance and price of conformance.
COQ = PONC + POC
PONC = All those costs incurred because things were not done right the first time. POC = Those costs incurred to ensure that things are done right the first time.
THE COST OF QUALITY (COQ) SYSTEM
Origin
The system probably originated in the 1940’s in Western Electric and was used as an attempt to measure the efficiency of work processes in financial terms. The system has been around for some 40 odd years but has not been successfully implemented by many organisations.
In any company, the total operating costs can be broken down into:
PONC
POC
Error-free costs
Error-free costs include all expenses incurred for operating processes as they were designed, assuming no planned waste; rework or non-conformance was part of the design. Expenses the word include those for materials, labour, equipment, plant, officer energy, etc.
The cost of quality typically runs at 10 to 30% of sales in manufacturing companies and 20 to 50% of operating costs in service companies.
The cost of quality is not an accounting system
The cost of quality is a communications tool and should not be viewed as a classical accounting system. An analogy may help to make this clear. You are walking down the street and, unprovoked; a maniac fires a shotgun at you. You fall to the ground, alive, but seriously wounded and bleeding from numerous perforations. The accountants and quality specialists would try to devise a system of counting precisely the number of red blood corpuscles that you are loosing. The cost of quality specialist (doctor) simply wishes to know roughly but with some accuracy and consistency, where the worst leaks are so that he can plug them fast. In the first instance the patient would die before
Cost of quality = Price of nonconformance and price of conformance.
COQ = PONC + POC
PONC = All those costs incurred because things were not done right the first time. POC = Those costs incurred to ensure that things are done right the first time.
THE COST OF QUALITY (COQ) SYSTEM
Origin
The system probably originated in the 1940’s in Western Electric and was used as an attempt to measure the efficiency of work processes in financial terms. The system has been around for some 40 odd years but has not been successfully implemented by many organisations.
In any company, the total operating costs can be broken down into:
PONC
POC
Error-free costs
Error-free costs include all expenses incurred for operating processes as they were designed, assuming no planned waste; rework or non-conformance was part of the design. Expenses the word include those for materials, labour, equipment, plant, officer energy, etc.
The cost of quality typically runs at 10 to 30% of sales in manufacturing companies and 20 to 50% of operating costs in service companies.
The cost of quality is not an accounting system
The cost of quality is a communications tool and should not be viewed as a classical accounting system. An analogy may help to make this clear. You are walking down the street and, unprovoked; a maniac fires a shotgun at you. You fall to the ground, alive, but seriously wounded and bleeding from numerous perforations. The accountants and quality specialists would try to devise a system of counting precisely the number of red blood corpuscles that you are loosing. The cost of quality specialist (doctor) simply wishes to know roughly but with some accuracy and consistency, where the worst leaks are so that he can plug them fast. In the first instance the patient would die before