A brief overview of quality costs in project management
Project Quality Management is a critical process in the life cycle of any project. It helps to show that the project is on the right track as planned. The project team should conduct assessments to relate outcomes with requirements. Any project that does not meet the planned requirements should be reviewed.
Quality processes in project management entail several activities that control objectives, policies, scope, and responsibilities to allow the project to meet its intended outcomes. The project team initiates quality management processes through project policies, procedures, and processes, which guide quality control, planning, and assurance. In addition, there are continuous quality improvement processes in any project as required. In quality management, there is the cost of quality (COQ).
It refers to “the total costs incurred by investment in preventing non-conformance to requirements, appraising the product or service for conformance to requirements and failing to meet requirements (rework)” (Pyzdek 23). Therefore, costs of quality entail failure costs or costs of poor quality, which could be either internal or external.
Why reducing quality costs is important in project management
The major aim of any cost of a quality program is to lower quality costs to the lowest affordable level. Such a level takes into account the total of “the costs of failure and the cost of appraisal and prevention” (Pyzdek 45). Generally, the cost of failure reduces with the increase in conformance level of quality while it approaches the required standard or perfection. At the same time, the costs of appraisal and prevention also escalate significantly. While the previous models failed to account for the literal perfection levels, the new models have recognized that it is possible to achieve certain levels of perfection (error-free production) and eliminate related costs.
The project team reduces the costs of quality by identifying the main causes of quality issues and taking the required actions to counteract quality issues.
Quality cost systems assist project managers in planning for improving the quality of services or products by identifying areas that can optimize value and ensure greater returns on investments. Quality costs focus on ensuring that the project team engages in the right processes and procedures for the required outcomes. It is, therefore, important to eliminate all defective processes and any processes that affect the quality of products. It is important to note that quality costs do not account for all costs in operations.
Synthesis of key issues
The important principle of the cost of quality is that any cost that is incurred because of poor quality but might have been avoided through perfect quality is a cost of quality. There are observable costs, such as rework or scrap costs that organizations incur. In addition, there are other costs, which are not readily observable, such as the costs of placing new orders for defective parts and time.
Specifically, costs of quality concentrate on costs that organizations incur due to failure to achieve product or service quality based on the company’s standards and clients’ requirements. Such requirements are numerous and may include final product quality, marketing specifications, company procedures, and government regulations, among other processes as defined in a given industry. In this regard, quality costs may result from investment in prevention strategies, appraisal of products or services for conformance, and costs associated with product or service failures.
In most cases, clients are mainly concerned about the overall costs and profitability of products and services. Cost overruns and delays in projects have been cited as the major contributing factors to the high costs of projects. Generally, researchers and project managers have concentrated on the technical elements of cost management in their areas in order to achieve the project objectives and meet clients’ specifications. Although other studies have identified how external environments could affect the costs of quality, many studies have focused on internal processes of costs of quality.
In the recent past, General Motors (GM) has recalled millions of cars globally, while in the years 2008 and 2009, Apple recalled its first generation iPods in Japan and Korea respectively. Given these case scenarios, one can conclude that these companies have incurred high costs of quality due to poor product quality and therefore, it is imperative to understand what costs of quality means in the production process.
Organizations have put in place mechanisms to prevent poor quality of products and services. All costs incurred in these processes are referred to as prevention costs. For instance, many companies spend their resources on product reviews, surveys, quality planning processes, designs, education and training on quality and process evaluation and quality improvement among others in order to prevent development of poor quality products or services.
Companies also conduct product or service appraisal and incur associated costs. Such costs may be classified under “product or service evaluation, assessment or audit to ensure their quality and conformance” (Pyzdek 47) to the industry quality standards and performance capabilities. Costs may arise from inspections and tests or costs associated with materials for conducting such activities.
Failure costs are generally common and obvious to many stakeholders, including customers (Bourne 67). Products or services may fail to meet standards or user needs as was the case of many GM recalled cars and defective mobile phones. These are failure costs. Organizations incur internal failure costs prior to product or service delivery to clients (Pyzdek 49).
These costs may be associated with the product or service rework, re-inspection, retests and other review processes and procedures. On the other hand, external failure costs are incurred after product or service delivery to customers. These costs may be related to processing customers’ complaints and product returns among others. Failure costs are common across industries and organizations. They are associated with high costs of products or services and negatively affect sales and profitability.
Total Quality Costs
This refers to all costs of quality incurred in product or service development throughout the supply chain. It covers the variation between the real costs of a product and the incurred costs if substandard or defect products or services are avoided. Organizations can achieve product perfection levels by ensuring conformity to the required standards and be able to eliminate such costs.
Studies have established that the cost of failures could be a substantial margin of total costs and those traditional approaches of identifying them may not be effective. In addition, it is not simple to eliminate failure costs without planned change processes in employee attitudes and norms of behaviors in an organization. This process also requires enhanced managerial activities and coordination in the entire supply chain. Hardy-Vallee observes that products or service failures are associated with high costs (1-2).
Given such high costs of failure, project management has become a critical integral part of any service or production process. The project team understands all the different “processes, milestones, stakeholders, charts, work plans and deliverables” (Hardy-Vallee 1-2). The team, however, is unable to meet the major constraints such time, project scope and budget (Hardy-Vallee 1-2).
Many costs of quality arise from the product or service life cycles, which many organizations follow. Many organizations have developed internal processes that various projects must follow. Such processes aim at mitigating potential risks in project management (Krane, Rolstadås and Olsson 81). For instance, organizations train the project team on both technical and soft skills to ensure that a project is successful. Based on organizational product or service development processes, training for any projects may be mandatory. At the same time, organizations would incur costs associated with the project monitoring, status review and evaluation at various phases.
It is not simple to detect costs of quality in many organizations because they are always hidden costs. In this context, organizations should conduct specific cost of quality identification processes. Such processes should include provisions for identifying and clarifying costs of quality incurred in a project.
A study by Jafari and Love identified and reviewed the effectiveness of a quality program implemented for a project within the first 18 months (479). They undertook “a quality costing exercise, and it was revealed that quality failures accounted for 0.05% of the project’s contract value” (Jafari and Love 479). It is imperative to note that cost of quality management is critical for creating competitive advantage through quality improvement plans. Effective measurement of costs of quality should identify all quality costs.
Poor quality management affects organizations in major two ways. First, there are higher product costs associated with appraisal and failure costs. Second, poor quality products or services also affect customer satisfaction. Companies that manufacture poor quality products or offer poor services usually experience “price pressure, lost sales and low customer satisfaction, which have overall impacts on customers, revenues and profitability” (Bourne 67).
A combination of higher costs of failures and poor revenue generation could cause a crisis and ruin a company. Therefore, effective cost of quality management is a method that organizations can use to eliminate operational risks and avoid financial crisis.
Given the difference nature of projects, organizations should develop appropriate models to allow them to consider quality throughout the project life cycle. Quality should be incorporated in project planning and work plan development.
In addition, they must also account for various variables that affect quality, time and costs. In this context, quality control processes should identify and describe the relationship among time, costs and quality of every project task. The initial process should identify potential areas of poor quality across various phases of a project with regard to costs and time. Organizations should generate cost of quality curves to demonstrate their effectiveness in cost of quality management processes. Such level curves assist project managers to understand costs of quality in a project. Hence, they can be able to make relevant decisions and develop quality products and services.
Costs of quality in project management should help organizations to develop products and services that meet industry standards and conformance requirements, as well as satisfy customers’ requirements. Cost of quality is a tool that organizations can use to limit costs of production and project or service failure.
Bourne, Lynda. “The cost of quality.” PM Network 26.9 (2012): 67. Print.
Hardy-Vallee, Benoit. “The Cost of Bad Project Management.” Gallup Business Journal (2012): 1-2. Print.
Jafari, Amirhosein and Peter Love. “Quality Costs in Construction: Case of Qom Monorail Project in Iran.” Journal of Construction Engineering and Management 139.9 (2013): 1244–1249. Print.
Krane, Hans, Asbjørn Rolstadås and Nils O. E. Olsson. “Categorizing risks in seven large projects—Which risks do the projects focus on?” Project Management Journal 41.1 (2010): 81–86. Print.
Pyzdek, Thomas. Handbook for Quality Management. Arizona: QA Publishing, LLC, 2000. Print.