Economic Considerations of Quality

Economic Considerations of Poor Quality
Economic Considerations of Poor Quality

Economic Considerations of Poor Quality Photo by Martin Fisch


Quality isn’t a nice-to-have attribute; it’s a requirement in today’s business environment. Poor quality has a sneaky way of negatively affecting the bottom line. And driving you out of business.

Conversely, having great quality can lead to outstanding business. A great real-lfe example is the Goruck Scars guarantee. These guys make backpacks and gear to US Special Forces standards. It’s not cheap, but it guaranteed to work for life. And if it doesn’t, they replace it.

A good analogy to think of are weeds in a garden. Some people may say that if you have weeds in a garden, then that’s just the ‘cost of doing business.’ But what if we looked at it from a different perspective? What if we tallied up all of the costs those weeds were incurring? Like taking water away from your other plants or all the time you have to spend weeding!

The Cost of Defects

We discuss this in-depth in the cost of poor quality article. But having defects means that  you incur costs finding the defect or defective piece, (or worse- handling a customer who finds the defect for you!), the cost of remediation or replacement, and of course you miss out on good production the first time through so there is a opportunity cost as well.

Hidden Costs in Not Using Standards

Imagine a shop where nothing was standard. An easy example in an office setting might be a place where every employee had a different computer. Some had PCs, some had Apples, other had Unix boxes. In addition to different operating systems and platforms, the software was different.

The technical support staff required to debug and troubleshoot all of those systems would be immense. How could your support staff be expected to be an expert in all of those systems? What about software costs? When buying licenses in bulk you could likely get a discount. Not so if you are buying them one at time. What about training costs where your employees have to be proficient in many kinds of software packages and operating systems?

Hidden Costs in Estimates

The joke goes ‘an estimate is an estimate.’ Unfortunately people tend to forget externalities in their estimates – the things that are outside the main process that affect the main process. A great example is pollution effects not being included in the price of gasoline. Certainly there is a cost associated with rising greenhouse gasses and damage to the environment due to the discovery, extracting, transport and delivery of that gas.

Even though you end up paying for those costs, they are rarely accounted for in an estimate.

Responsibility for Poor Quality

Responsibility for Poor Quality for the organization is rarely defined. When it is defined, the scope is usually narrowed to an organizational reporting chain. What is needed is an “optimize the whole” mindset where quality is examined from end-to-end in the enterprise insuring that no one set of quality control activities negatively impacts other processes. For example, quality control in the risk mitigation department could negatively impact sales.

Six Sigma Black Belt Certification Economic Considerations of Quality Questions:

Which of the following will have the most influence on consumers’ perception of quality?

(A) Industry standards
(B) Company financial performance
(C) Audit results
(D) Service and repair policies


(d) Service and repair policies. Customers will never be expose to internal audit results, so we can eliminate C off the bat. Unfortunately, there are plenty of companies out there performing well financially with poor quality items or service (until a disruptor with great quality comes along!) Very few customers will be familiar with industry standards or privy to how a company measures against them. However, if a customer sees a strong and robust service policy, and a company standing behind it’s product,


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