Visible vs. Hidden Costs of Quality

Most organizations do have reports in place to measure and track quality costs. However, existing reports usually track visible (traditional) quality factors such as:

• Rejected material
• Scrapped product or work-in-process (WIP)
• Rework costs
• Yield loss
• Warranty costs

But there is more to the full Cost of Quality than visible costs. When a substandard Quality event does occur, a complex series of costly events is triggered – the hidden costs. Since the impact of hidden costs is not (usually) tracked, their impact may not even be understood.

Hidden cost inputs include:

• Extra operations
• Investigation into causes of defects
• Disruptions to schedules
• Emergency procurement of supplies
• Expedited shipping
• Disposal costs

(Even these factors do not include intangible hidden costs such as potential lost sales, lost customers and potential damage to the brand’s reputation.)

The full Cost of Quality is the sum of traditional Quality costs that are already captured added to the hidden costs.

• Interestingly, the costs associated with hidden factors are often greater than the visible (traditional) costs that existing reports track.

A formal Cost of Quality program includes a structured approach that:

• Collects Cost of Quality data, both visible and hidden.
• Groups the data into like categories so that it can be analyzed.
• Prioritizes the areas that need attention.
• Acts as the catalyst to initiate improvement efforts.
• Tracks the progress of Cost of Quality improvement efforts over time.