![]() here is little emphasis on whether the money in the department is spent effectively. Traditional accounting approaches are designed to track the inflow and outflow of money in an organization (and, by extension, to product lines or departments). Similarly, doing an incorrect operation over again absorbs cost (operator time, power, additional materials, etc.).Īlthough anyone who works in an organization will be familiar with many examples of both of these issues, business accounting systems are not set up to capture these costs. If we have to throw a product away because we have made an error in its manufacture, it is clear that there is an immediate financial impact as all the costs sunk into the product are lost. Perhaps the most obvious tangible benefit of quality improvement is the reduction of costs associated with non-quality. This simple idea may be best illustrated by Deming’s Chain Reaction as shown in figure. The basic idea is that improved quality brings improved financial performance. If improvement in performance brought the customer back then the tangible benefit would be $600,000 per annum. So the loss, due to quality issues, of a customer currently spending $50,000 a month would be a loss of $600,000 per annum to the company concerned. Tangible benefits refer to items which have a direct financial value or are ‘monetisable’ in some sense.
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