5.3.1 Quality costing in practice
Costs of implementing and keeping formal Quality systems in companies vary according to a number of factors, some of which are:
- level of formalisation of the company's procedures
- state of preparedness for the audit
- expertise of the auditors
- distance from auditors' office (since most auditors claim expenses)
- size of organisation
- nature of business of organisation
- number of sites / facilities covered.
It is therefore not possible to give an indicative figure of costs in absolute money terms. However, Grewal (1997) suggests the following pattern:
Size of company |
Cost of Quality system (percent of annual turnover) |
Small |
4 - 6% |
Medium |
2 - 4% |
Large |
0.2 - 1% |
Rule of thumb figures that have emerged from discussions with professional colleagues in the USA put a figure of US$ 1,000 per employee per year.
It is obvious that, for large companies, quality systems cost less in relative terms than they do for small ones. This may be one of the main reasons that there are a larger percentage of large organisations with formal quality systems than small ones. On the other hand, Grewal (1997) also states that benefits in additional business may be greater for smaller companies. Some of the benefits include:
- For companies trading internationally, the removal of some barriers to trade.
- Some measure of reduction in audits from clients.
- Periodic quality audits lead to collective refocusing on the corporate aims. Audits do lead to a certain amount of (benign) stress. This is brought about by the questioning by each person whether he/she is carrying out the responsibilities as required by the quality system. Internal audits are known to be the most beneficial because they are carried out by the company's own personnel who have the insider's knowledge of how procedures are performed. Reports of internal audits are then maintained on record and made available to the external auditors, senior management, and the stakeholders in the company.
- Processes and procedures tend to be well thought through when they are formalised. This is so because responsibility of the formalised procedures rests with a senior manager. This person has to sanction the procedures and take responsibility for any shortcomings and changes that need to be made in light of experience or requirements.
- Systematic documentation and analysis can lead to identifying areas that need improvement or change.
- Improvement in inter-departmental communications and communications with customers. Proper documentation of customer requirements and the correct dissemination of pertinent information within the organisation, following specified routes and procedures, lead to accurately meeting customer needs and identifying reasons if this has not been possible.
- Increased ability to tender for business. This has often been quoted as a reason for getting a formal quality system in the first place. Certification to a relevant quality system has become an operating necessity in some sectors. In others, the certificate has considerable market value.
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