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Cost of Quality - Their Determination and Relationships


  • Korgaonkar M G


With a renewed emphasis on Management of Quality, the question of collecting and quantifying Cost of Quality (COQ) has assumed special significance. It is realized that organizations intending to launch quality improvement programs need to first deploy a suitable COQ system to support and direct the quality improvement process. Although the various components of COQ i.e. prevention, appraisal, external and internal failure costs have been recognized for a long time, it is only recently that the various issues connected with it have been systematically studied. In this paper we take a comprehensive look at the COQ issues and the kind of answers that research has yielded. More specifically, we are interested in the analysis of the following questions: 1. What are the various elements of quality of costs and how are they classified into COQ Companies? What are the company practices regarding these? 2. What are appropriate indicators of COQ? In general, how much do companies spend on quality, as reflected by COQ indicators? 3. What are the relationships between the COQ Components? How do they influence the COQ? 4. What are the effects of COQ on unit product cost and product profitability? 5. Can suitable analytical model be developed to predict the effect on COQ of changes in company efforts on prevention and appraisal? 6. How should a quality cost systems be set up? The above issues are analyzed in detail. The results from prevailing research are reviewed in seeking answers to the above issues. Finally we summarize the conclusions drawn from the study.

Suggested Citation

  • Korgaonkar M G, 1990. "Cost of Quality - Their Determination and Relationships," IIMA Working Papers WP1990-11-01_00981, Indian Institute of Management Ahmedabad, Research and Publication Department.
  • Handle: RePEc:iim:iimawp:wp00981

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    References listed on IDEAS

    1. Michael C. Jensen, 1968. "The Performance Of Mutual Funds In The Period 1945–1964," Journal of Finance, American Finance Association, vol. 23(2), pages 389-416, May.
    2. Shiller, Robert J, 1981. "The Use of Volatility Measures in Assessing Market Efficiency," Journal of Finance, American Finance Association, vol. 36(2), pages 291-304, May.
    3. Fama, Eugene F, 1972. "Components of Investment Performance," Journal of Finance, American Finance Association, vol. 27(3), pages 551-567, June.
    4. Summers, Lawrence H, 1986. " Does the Stock Market Rationally Reflect Fundamental Values?," Journal of Finance, American Finance Association, vol. 41(3), pages 591-601, July.
    5. John Lintner, 1965. "Security Prices, Risk, And Maximal Gains From Diversification," Journal of Finance, American Finance Association, vol. 20(4), pages 587-615, December.
    6. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    7. LeRoy, Stephen F, 1989. "Efficient Capital Markets and Martingales," Journal of Economic Literature, American Economic Association, vol. 27(4), pages 1583-1621, December.
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