The economic effects of quality improvement
By: FREIESLEBEN, Johannes
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ArticlePublisher: UK : Routledge, September 2005Subject(s): Costs of poor quality | Quality improvement | Price | Quality investments | ProfitabilityTotal Quality Management & Business Excellence 16, 7, p. 915 - 922 Abstract: Quality management professionals and researchers have long emphasized the financial benefits of quality improvement, yet so far a comprehensive economic rationale was missing. This can best be understood by the field's preoccupation with studies on quality costs. Costs are an important part of an economic assessment, but they only have limited value for a company in determining an optimal quality level. This is because profit maximization, and not cost minimization, is the prime goal of businesses. This paper will therefore focus on two things: the well-established empirical base of cost of quality studies shall be complemented with a general cost logic, and the importance of a profit perspective on quality improvement shall be highlighted by examining the revenue side of the profit equation. By combining the two developed arguments, the profit case for quality improvement shall be made.
Quality management professionals and researchers have long emphasized the financial benefits of quality improvement, yet so far a comprehensive economic rationale was missing. This can best be understood by the field's preoccupation with studies on quality costs. Costs are an important part of an economic assessment, but they only have limited value for a company in determining an optimal quality level. This is because profit maximization, and not cost minimization, is the prime goal of businesses. This paper will therefore focus on two things: the well-established empirical base of cost of quality studies shall be complemented with a general cost logic, and the importance of a profit perspective on quality improvement shall be highlighted by examining the revenue side of the profit equation. By combining the two developed arguments, the profit case for quality improvement shall be made.
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