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140 Managing Customers Through Economic Cycles

Cost of quality

Cost of quality is another typically strategic business case
approach, which is a dimension of Total Quality Management
(TQM). TQM is a business management strategy focused on
embedding awareness of quality in organizational processes.
The “cost” of quality is not the cost of creating a quality
product or service but the cost of not creating a quality
product or service. This “cost” can be used to illustrate the
business impact of your product or service if your product
or service reduces costs associated with poor quality.

When determining how your product or service could
impact your potential customers’ attributes of quality in their
processes, you can analyze any scope of activities that can
be affected by your product. For example, if your product
is designed to improve the efficiency and effectiveness of
both a sales and marketing organization, Figure 6.3 illustrates
how you would view your product’s or service’s impact from
a cost of quality perspective.

There are two dimensions of cost and quality that must
be examined.

Total resources
of Sales and Marketing

Essential Cost of
first-time work quality

Prevention Appraisal Rework / Failure
costs costs costs

Internal External

Figure 6.3