Abstract

When asked to identify where operating costs can be cut, many executives would remove functions that provide quality and services to meet customer needs. This misunderstanding stems from the misconception that improving quality through initiatives such as Six Sigma is expensive. Yet a Six Sigma initiative focused on reducing the costs of poor quality enables management to reap increased customer satisfaction and bottom-line results. Three categories of costs of poor quality are appraisal and inspection costs, internal failure costs, and external failure costs. Once a task force is able to identify specific activities related to poor quality, strategies can be applied to estimate its costs. Collecting data on costs helps organizations select the most important quality improvement projects, identify the most costly aspects of a specific problem, and identify specific costs to be eliminated. After all data are collected and decisions are made, a continuing action plan should be implemented to eliminate costs that have been identified. This may be any consistent and unbiased method that will yield adequate information that will identify key targets for quality improvement. A sidebar describes sources for data for calculating the total resources used in an expense category.