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Cost of quality

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Quality awareness presentation for the Project team

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Cost of quality

  1. 1. COST OF QUALITY &QUALITY BENEFIT ANALYSIS August 2017 Wael Khalil MARITIME YARD DEVELOPMENT PROGRAM QUALITY AWARENESS
  2. 2. Content Performing the cost-benefit analysis Cost of Quality Introduction Cost of Quality Classification Cost of Conformance Cost of Non-conformance Total Cost of Quality 2
  3. 3. Introduction  When you use the proper quality planning tools and techniques, you are better able to meet your project's quality requirements.  Meeting quality requirements has certain benefits: • Less rework • Higher productivity • Lower costs • Increased stakeholder satisfaction.  To achieve quality, project managers need to use tools and techniques to plan quality into a project. Two of these techniques are: • Cost of quality • Cost benefit analysis.  Both techniques deal directly with weighing the benefits of quality against the costs of quality.  First you determine the cost of quality. Then you use those values to perform the cost benefit analysis. 3
  4. 4. Cost of Quality  Cost of quality includes the total cost of all efforts related to quality throughout the life of a product. This includes: • Efforts to prevent nonconformance to requirements. • Quality testing. • Rework when the product or service fails to meet requirements.  In short, any quality-related task that incurs a cost can be included in the cost of quality. These tasks can be either planned or unplanned. Project managers need to bear these tasks in mind when planning schedules, and consider their costs when devising budgets. 4
  5. 5. Cost of Quality Classification  Cost of quality considerations can be classified in two main groups: • Cost of Conformance • Cost of Nonconformance.  Cost of Conformance consists of all costs incurred to ensure the project conforms to the required level of quality. Cost of Nonconformance consists of all costs incurred when the project fails to meet the required level of quality. 5
  6. 6. Cost of Conformance  The cost of conformance contains two categories of costs: Prevention costs are those costs incurred to prevent the customer from receiving a poor quality or defective product or service. Appraisal costs are those costs incurred to find quality problems and to check that the product or work processes are meeting project requirements. Simply put, any kind of testing and inspection falls into this category. 6
  7. 7. Cost of Non-conformance  The cost of nonconformance includes failure costs, otherwise known as the cost of poor quality. Internal failure costs are incurred before the product or service is released to the customer. External failure costs are incurred only once the product or service has been released, and the customers are not satisfied that their requirements have been met.  There are two categories for such costs: These costs are incurred when things go wrong – like having to fix manufacturing errors and dealing with customer complaints. 7
  8. 8. Total Cost of Quality  The total cost of quality can be seen as the sum of prevention, appraisal, internal failure, and external failure costs. 8
  9. 9. Performing the cost-benefit analysis  Benefits of Quality versus The Costs of Quality  It ensures that time and money are invested only in quality activities and process changes that are worth the effort.  It helps PM to determine, Is it cost-effective to make a quality- related change?  Supporting the maximum level of quality satisfaction at the lowest cost available Why Performing Cost benefit analysis? 9
  10. 10. Steps to Perform the cost-benefit analysis 1. List and calculate the total cost of quality – which includes the costs of all efforts related to quality throughout the Project life cycle. 10 Direct costs: They can include expenses from equipment, operators, personnel, training, materials, utilities, contractual services, and facility construction. Indirect costs: are usually based on estimating or prorating shared resources, such as a portion of infrastructure maintenance and depreciation, or overall administration expenses. Also, worker safety and environmental factors.
  11. 11. Steps to Perform the cost-benefit analysis 3. Compare the results and determine whether the total financial benefit is worth making the change 2. List and calculate all the potential financial benefits of Quality 11 Tangible benefits: include quality, time, labor, risk, production, maintenance, and the ability to draw upon pre- existing resources. Intangible benefits: such as increased levels of service and customer satisfaction, are the gains attributable to improving your project.
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