Quiz 19: Total Cost Management: Measuring the Costs of Quality


In today's world many organizations are considering good quality as a key to reduce cost. Quality here doesn't limits itself to the health care facilities only; rather it also includes improvisation of the operations and administration of an organization. When quality is considered for a short time period it will include huge expenditures but for a long term basis it will prove itself as an advantage for the organization. It is because the efficiency of the firm increases with improvement in working conditions, health care of employees, proper work and rest hours. Moreover, as improving quality of organization involves huge cost so there is requirement of calculating this cost also. It is included in budget of the organization. This will lead to avoidance of excessive expenditure over quality improvements. The possible reason for properly identifying and measuring the cost associated with it is that it provides competitive advantage to the health care organization. Cost of quality includes cost from following departments- Manufacturing / operations, Design, research and development, Finance and accounts, Production or operation planning and control, Delivery and installation, Purchasing, storage and handling, Sales and marketing Service. This is done due to the reason that in every organization, all of its business activities and programs are decided on the basis of its capability to contribute towards profit of organization. Information about the quality costs helps managers to justify their investment in these quality improvements and thus helps them in monitoring the effectiveness of the efforts they have made. So this quality costing expresses the firm's qualitative performance in monetary terms which gets appreciation from the board of management and stakeholders. This help to influence employee behavior and attitudes at all levels in the organizations towards continual quality improvement. Quality costs measurement identifies the potential opportunities of cost reduction. It seeks for high expenditure areas. Thus, it is essential for accounting department to be able to measure quality and the cost of improvements in quality.

A system of management which is based on that every member of the company must be dedicated to continue high standards of work in each facet of company. It focuses on performing work appropriately so that it is not required to do again. It considers high quality as a key to low cost. S and M have described four types of costs which are related to quality. This model was designed for manufacturing industry. But with some modifications and variations, it can be equally applicable to health care industry. These costs are described as follows: External Failure costs : It refers to costs related to repair or replacement of defective product like shipping, repair, handling and warranty adjustments. Sometimes the administration costs, legal fees and goodwill costs are also included in this. For any healthcare company, it is important to identify such costs as fast as possible without wasting much time and control them. Otherwise, it will affect its customers. Internal Failure costs : These costs are related to failure or defects that are revealed by the company prior to the service or product is delivered to the customer. In health care organization such failure occurs while treating the patients. Such costs are smaller than external failures. To avoid such costs, it is important to do the task first time right, not because these costs are expensive but because it results into wastage of time and hence delay. Appraisal costs : It is different from two of the failure costs mentioned below, as these costs not only help in minimizing failures but to provide better quality. It can be understood as cost incurred on inspecting the product to know whether the requirements of customers are satisfied or not. These costs focus on providing quality to external customers as well as internal customers are employees using output of respective department. Prevention costs : As the name suggests, these costs look after prevention of failure costs, internal as well as external. In other words it can be understood as cost incurred by the company to avoid internal and external failure. They involve costs related to establishment of quality operating system. Though the main aim of the company is to reduce overall costs through prevention costs, main priority is given to safety of customers or patients.

Qualities of health care organization are difficult to measure and define as compared to other organization. Quality of Health care services generally depends on the process of the services, interaction between customers and provider of the services. Some attributes of the health care organization are consistency, timeliness and accuracy. The dilemmas the most of health organization are facing is that the health organization is not bale to able manage the quality with the respective timelines as they are so surety how long a patient is stay in emergency and what are the service that are going to be provided to the patient and when some should schedule the surgery. What can be done to avoid the waiting time for a patient, generally many health organization are competing by reducing the waiting time. Health organizations also are having an option to short down the period of staying in hospital. Quality matter a lost for any organization specially Health organization because the patient want the standard cure in effective timeliness and Heath organization also up for providing the quality with keeping the cost factor. But heath organization facing the issue in terms of find the cost. Heath organization also not sure to measure the cost of operation room, service and allby providing the best services.