Phil´s Journal


The Cost of Quality and Price of Nonconformance

During the question-and-answer session of a recent speaking engagement, I was asked why I insist on talking about the "price of nonconformance" when everyone else talks about the "cost of quality." Much of the previous question time had been concerned with our new interactive CD that shows the individual how to calculate PONC.

In the late 1950s, I attended a seminar where they used a case developed by General Electric Co. during the time Armand Feigenbaum was there. The case study compared two assembly lines using financial measurement. It was the first time I had seen money and quality put together in some measurable form, and it made me think. After a while, I decided that quality professionals and management looked on COQ as a sort of tax, or fee, on "goodness." The main effort was to analyze the numbers and determine what would be a good level for that kind of business. No action seemed to come from the thought, and, in fact, no companies used it except in isolated applications like products or manufacturing lines.

In 1965, I wrote Cutting the Cost of Quality, which aimed at showing how measurements could be used to establish prevention as the way to achieve improvement. The book was not well-received by the conventional quality population, but it did have some readership and was reprinted in 1990 in a 25th anniversary edition.

When I joined ITT in 1965 as the corporate quality director, I realized that I would have to find a way to communicate with management about quality in financial terms. The COQ formulas defining internal and external failures, prevention and other costs were too mixed up for management to deal with. They did not set up actionable forces. I defined quality as "conformance to requirements" and nonquality as "nonconformance to requirements." The questions then became, "What does it cost us to not conform to the requirements we have established for use in producing the products and services of our organization? What is the PONC?"

This could be plugged into the accounting system once we defined actions that wouldn't be necessary if we did everything we had agreed upon. The financial department then could report on each division and product line, as well as the corporation as a whole. We found this to be a huge number, about 25 percent of revenue, compared with the 3 percent or 4 percent COQ evaluations produced. The main result was that it became easy to identify the areas needing corrective action.

By paying attention to and acting on these measurements, ITT reduced its PONC during the next few years to below 6 percent. After that, I never had any problem getting management's attention about quality.

In 1979, in Quality Is Free, I included information about PONC. The interest from management of other companies and the book's reception led me to set up Philip Crosby Associates Inc. and the Quality College, where we taught client companies how to understand and manage quality. The key item was the price of nonconformance--that way they could measure their success or failure.

In short, COQ is viewed as a tax on goodness and is used that way. PONC is a measurement management can use to deal with quality as they deal with all the other components of their work.


About the author

Philip B. Crosby, a popular speaker and founder of Philip Crosby Associates--now PCA II--is also the author of several books, including Quality Is Still Free (McGraw-Hill, 1995) and The Absolutes of Leadership (Jossey-Bass, 1996). Visit his Web site at .


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