A proposal for an economic quality loss function

Abstract

Quality loss functions have found widespread application in production engineering and today are an indispensable part of quality management. However, they share an obstacle with most other quality concepts concerning their limited communicability to top management. In the allocation of financial resources, a company's executive board is commonly interested in the profit implications of competing projects, but existing concepts fail to capture the profit impact of changing quality levels, thus putting quality initiatives at a disadvantage compared with more “classical” investment opportunities. To address this problem, in this paper, we propose a new type of function we call “economic quality loss function.” The suggested function is composed of measures for the single profit parameters and indicates how sensitive a company's profit function is to defect levels. By providing a simple comprehensive measure, it helps the practitioner evaluating quality initiatives and communicating their desirability to top management.