Cost of Quality in theory has been around since the 1950’s, but I find that many of my clients do not track or have a complete understanding of this concept. COQ is often misunderstood. It is not just the price of creating a quality product or service. It is the cost of NOT creating a quality product or service.
The two typical questions usually asked by organizations not adhering to this concept are: What is the financial impact of COQ on my organization? How much money or capital do we need to spend on quality? The key is finding a balance between the costs associated with preventing issues from happening and the costs of the issues occurring.
Traditional accounting, which puts a focus on external reporting may fail to identify your COQ. I have recently witnessed a client discussing a highly profitable product line only to find it substantially overstated and misleading when taking COQ into consideration.
Reducing external failures is vital. They usually represent only a small part of total COQ, but they are the worst because they can lead to damaging your reputation.
Steps to launching a COQ program:
-Define your COQ categories and start collecting the data.
-Assign a person to be responsible for each category and set up your goals.
-Analyze and chart your COQ data monthly.
An effective COQ program should push your organization towards continuous improvement, reduce costs and increase profitability. CDH’s Executive Focus is an excellent solution for helping your business not only set up your COQ program, but also help your management team improve overall company performance.
Executive Focus is a visualization tool that provides transparency within the organization and empowers people with knowledge by helping them have a better understanding of all departments within the business. How do we do this?
- We develop a custom set of business metrics that represent your organizations function as a whole.
- We focus on Key Performance Indicators (KPI’s) that clearly reflect efficiencies and value add capabilities.
- We facilitate monthly management team meetings to highlight and discuss the trends and relationships in your results to drive a culture of continuous improvement.
Matt Wirth is a Senior Consulting Manager for CDH, a national accounting and consulting firm. He has been consulting with privately held companies for over twenty years. CDH provides a service called Executive Focus. This service offers a process, tools and support to help management teams improve their performance. They design custom graphics packages which identify trends, relationships and performance drivers. The net effect is a system that fosters continuous improvement and enhances the bottom line. Matt has a BBA in accounting from the University of Wisconsin-Milwaukee and is a CPA.