Management And Accounting Web

Shank, J. K. and Vijay Govindarajan. 1994. Measuring the "cost of quality": A strategic cost management perspective. Journal of Cost Management (Summer): 5-17.

Summary by Barbara Rice
Master of Accountancy Program
University of South Florida, Fall 2000

Deming Main Page | Japanese Management Main Page | Quality Related Main Page

Theme of article: A discussion of different cost analysis frameworks for management commitment to total quality.

Four Main Schools of Quality Management Thought
Joseph Juran Edwards Deming Philip Crosby Japanese Approach
Definition Conformance Conformance Conformance Uniformity
Goal of program Decrease COQ Competitive improvement Decrease costs Continual improvement
Quality Goal Minimize COQ Zero defects
"robust quality"*
Zero defects Zero defects
Management's Role Leadership, participation Leadership Stress participation improvements Breakthroughs and zero defects
Worker role Moderate Maintenance and improvement Moderate Maintenance and improvement
COQ emphasis High None Moderate Low
Statistical analysis For lower mgmt High use Mixed High use

  Traditional View versus TQM Perspective
Concept or Approach Traditional TQM
Responsibility Worker responsible for defects Everyone responsible for defects
Problems start in operations Problems start before operations
Inspect quality in Build quality in
Inspect after production Quality at the source
Large quality control staff Small quality control staff
Workers serve managers and engineers Managers and engineers serve workers
Linkages with Suppliers Multiple suppliers Single supplier
Inspect incoming goods No incoming inspections
New Product Design Designers separate from operators Teamwork with operations, marketing, design
Design for performance; don’t consider production Design for performance and ease of production
Quality Goal Zero defects impractical Goal is zero defects (See note below)
Mistakes inevitable Mistakes learning opportunities
Key is reasonable tradeoff Key is perfection
Cost Management Allowance for scrap, waste, rework No allowance for scrap, waste, rework
Only financial performance measures Emphasis on non-financial performance measures
No cost of quality (COQ) analysis COQ as diagnostic and management control tool
Control Philosophy Goal is top of reference group Goal is kaizen
Meet, not exceed standards Target is to exceed previous year’s performance

COQ Methodology - 4 categories: prevention costs, appraisal costs, internal failure costs, external failure costs

Spending more on upstream activities should improve quality and lower cost.

Improving inspection costs (appraisal), increases internal failure costs but decreases external failure costs more.

COQ reporting:

Conventional reporting hinders TQM, (costs appear before results); COQ reporting can help TQM.

Should include nonfinancial measures as well, i.e., supplier information, design information, production information, marketing information – these can be reported quickly and immediate responses are possible.

COQ Analysis:

Poor quality is expensive.

Spending on prevention saves on inspection, internal and external failure costs.

Consistent conformance creates customer goodwill.

Conventional management accounting is a barrier to TQM.


* Note: Deming did not like the term zero defects. It would be better to use the term "robust quality" when applied to Deming because he advocated continuously seeking perfection. Read the summary of Chapter 10 of Deming's New Economics and the Taguchi & Clausing and Roth & Albright summaries to find out why.

Related summaries:

Albright, T. L. and H. Roth. 1992. The measurement of quality costs: An alternative paradigm. Accounting Horizons (June): 15-27. (Summary).

Albright, T. L. and H. Roth. 1993. Controlling quality on a multidimensional level. Journal of Cost Management (Spring): 29-37. (Summary).

Albright, T. L. and H. P. Roth. 1994. Managing quality through the quality loss function. Journal of Cost Management (Winter): 20-37. (Summary).

Anderson, S. W. and K. Sedatole. 1998. Designing quality into products: The use of accounting data in new product development. Accounting Horizons (September): 213-233. (Summary).

Carr, L. P. and L. A. Ponemon. 1994. The behavior of quality costs: Clarifying the confusion. Journal of Cost Management (Summer): 26-34. (Summary).

Deming, W. E. 1993. The New Economics for Industry For Industry, Government & Education. Cambridge: Massachusetts Institute of Technology Center for Advanced Engineering Study. Chapter 10. (Summary).

Fargher, N. and D. Morse 1998. Quality costs: Planning the trade-off between prevention and appraisal activities. Journal of Cost Management (January/February): 14-22. (Summary).

Gabel, N. 1991. Is 99.9% good enough? Training Magazine (March). (Summary).

Kettering, R. C. 2001. Accounting for quality with nonfinancial measures: A simple no-cost program for the small company. Management Accounting Quarterly (Spring): 14-19. (Summary).

Kim, M. W. and W. M. Liao. 1994. Estimating hidden quality costs with quality loss functions. Accounting Horizons (March): 8-18. (Summary).

Martin, J. R. Not dated. Constrained optimization techniques. Management And Accounting Web.

Martin, J. R. Not dated. Summary of the 1992 PBS Program Quality or Else. Management And Accounting Web.

Morse, W. J. 1983. Measuring quality costs. Cost and Management(July-August): 16-20. (Summary).

Pasewark, W.R. 1991. The evolution of quality control costs in U.S. manufacturing. Journal of Cost Management (Spring): 46-52. (Summary).

Roth, H. P. and T. L. Albright. 1994. What are the costs of variability? Management Accounting (June): 51- 55. (Summary).

Rust, K. G. 1995. Measuring the costs of quality. Management Accounting (August): 33-37. (Summary).

Taguchi, G. and D. Clausing. 1990. Robust quality. Harvard Business Review (January-February): 67-75. (Summary).