A quality costs scorecard

Juran’s Quality Control Handbook is a reference book for people who “are involved with” quality. The 4th Edition of the handbook includes an article by Frank M. Gryna about Quality Costs.

Gryna says that as companies began to extend the concept of identifying costs to quality they found that costs relating to quality were much larger than had been shown in accounting reports. They also found that the costs of poor quality were avoidable. Over time the meaning of “quality costs” came to mean the costs of poor quality.

Evaluating quality costs enables companies to quantify the size of the quality problem in a way that will have an impact and identifies major opportunities for cost reduction.

Quality Costs can be grouped into categories, which include:

• Internal Failure Costs, the costs of defects found prior to the product being shipped, such as rework
• External Failure Costs, the costs of defects found after the product is shipped, such as customer complaints

Some companies publish a scoreboard of quantifiable quality costs and I have created an example scoreboard on the tool that I test. You can see the board above. 

These are the costs that I have included in the example scorecard:

• Rework: Gryna includes rework in internal failure costs. He defines rework as “the costs of correcting defectives to make them fit for use.” This would be fixing bugs for a development team. 
• Partially Written Code: I have included the cost of partially written code as an internal failure cost as many development teams have projects that have not been completed, are in the code base and so are a cost. 
• Customer adjustment is listed as an external failure cost by Gryna. This is “the costs of investigation and adjustment of justified complaints attributable to defective product”. I have included these in my scorecard as customer service. 
• Customer churn, this is the percentage of customers who the company have lost as customers.
• Production incidents. These are unintended events in production that reduce service to the customer

The scoreboard represents the quality costs of a company and can be used to illustrate the need for continuous improvement of quality.

Further reading: Juran’s Quality Control Handbook 4th Edition