Quality

ACCA P5 Advance Performance Management

The only true measure of acceptable quality is customer satisfaction, which takes into account both objective and subjective interpretations of the needs and expectations of customers. – Chartered Quality Institute.

In today’s customer oriented business environment quality is key factor for product or service differentiation and to gain competitive advantage. Quality is a critical success factor in any business. Value of a product depends heavily on quality and technical specifications. But quality always comes at a cost. By nature quality cost is of two types: type 1 - cost to achieve quality and type 2 - cost of failing to achieve quality. There is trade-off between the two. In theory, there is an optimum level of acceptable defects where type 1 and type2 costs are minimised.

Types of quality cost:

Ø  Type1 (Cost of conformance): Cost to achieve quality until a product or service is finalized and tested

o   Prevention costs – cost of quality improvement program to prevent defects before they occur e.g. training

o   Appraisal costs – inspection and testing e.g. product sampling

Ø  Type 2 (Cost of non-conformance): Cost of failing to achieve quality

o   Internal failure costs – cost arising from failure to meet quality standards before product/service reaches to customer e.g. product mishandling

o   External failure costs – cost arising from failure to meet quality standards after product and service reaches to customer e.g. warranty

Both types of cost can be matched against targets and benchmark to measure performance.

Quality Management: Management activities to ensure products meet technical specification and needs of customers. It is a continuous process and should lead to improve performance.

Quality control: It is routine activities to measure and control quality of product.

Quality assurance: It involves testing of final product by third party to verify that specified quality standard has been met.

Quality practices:

Ø  Total Quality Management

Ø  Six Sigma

Ø  Just in Time

Ø  Kaizen costing

Ø  Target costing

CIMA Article: Quality Streak