The Recognized Evaluating Methodologies

Published Date: 02 Nov 2017

It is in fact a difficult job to gather data required by quality evaluation process. However once recognized could be a helping tool to manage costs and get simulated results with almost very low or near to negligible cost increment in monetary terms. Simulated software and dash board concepts could be implemented by using same data. In this way analyzing the effect of increasing or decreasing of one variable or more than one variable at a time could give valuable information for future planning. The main thing is Accounting department must worked with quality department to make the effort fruitful. With out the true involvement of all departments especially Finance department, it seems difficult to achieve positive results.

To evaluate Quality costs, Sales in percentage term is used as a base. Quality components as recognized by ABC costing and PAF approach is used to categorize costs. Management helped a lot to identify cost drivers at all levels. Monthly data is gathered while where it was not possible to get actual data on monthly basis ( like Depreciation and fixed costs) average amount is used. Costs are tabulated and trends are generated in terms of percentage of sales.

Data once developed is then used for further analysis in different techniques like Matrix building and control charts evaluation.

In Pakistan except some multinational companies, local companys don’t bother to evaluate their product performance on quality bases. As a result the experience low profits and declining growth in their earnings. In such organizations the initiative to identify quality cost components and related heads are very difficult to obtain. In Kims, Accounting heads as already identified by accounting department is use. then data is gathered about those heads which is required by ABC costing techniques. Process costing components are revisited, cost centers are identified, direct interviews are carried out and then with the help of top management and general manager other relevant data is collected.

Models:

Some of the commonly internationally recognized known quality models are as under. Unfortunately very small percentage of Local firms in Pakistan, used these models to evaluate quality related costs.

PAF models

P + A+ F

ABC models

NVA+VA

Process Cost Models

C+NC

Opportunity/ intangible Cost models

P+A+F+O

In Resent research, both ABC model along with some components of PAF model is used to address quality related issues. ABC costing is activity based costing first identify cost drivers and then evaluate their role in manufacturing process. As mentioned earlier, it is very difficult to get accurate required data in organization where no such measure has been taken. With ht e help of management this issue could bre resolved. However once the initiative is taken, it becomes very easy to evaluate different programs by using same methodology.

COQ drivers:

Cost drivers are identified by involving top management and members of accounting departments. some changes are also made as deemed necessary by management. Where data to the relevant category is unavailable or to be modified average data is used.

Cost drivers identified are:

A: Cost of Preventive Measures.( CQP)

B: Cost related to Appraisal Activities (CQA)

C: Internal Failures ( CQIF)

D: External failures (CQEF)

Sub categories of each Cost driver used are

A: CQP:

Quality planning ----QP

Process control-----PC

Data handling--------DAA

Trainings------TPD

Verifying Designs-------VD

Quality system------QSDM

Quality reporting---------QR

Improvement Projects--------IP

Maintenance-----------PM

CQA:

Inspection of material------------TIM

Online testing---------OIT

Setups Cost for inspection____SCI

Equipments and supplies inspection----------IES

Audits---------QA

C: QIFC:

Scrap----s

Rework-----R

Downyime-------DT

Yield losses----YL

Engineering designs------------ED

Product development, New-----NPD

Accidents----------A

D: QEFC

Customer Complaints-------CC

Warranty costs--------------WC

Material returned--------MR

Credit Allowances-----CA

Explanation of Cost Drivers selected:

To record details Month wise data is collected from Jan 2010 t0 dec 2010 . Where the data is available on annual bases Average amount is used.

QP: time period spend by Management on hourly bases is used to calculate Cost of planning. On average Planning time is estimated to be 120 minutes, 5 days in a week & On average monthly figure is 2400 minutes.

PC: process controlling cost is very difficult to identify accurately. Management and data recording department however agree to include Process in term of monitoring and Documentation cost in this context…these two heads cover Salary & wages of staff monitoring the quality, cost of control charts and data sheets etc.

DAA: data handling cost, also regarded as data analysis and acquisition cost is recorded in the shape of reports collected from MIS( management information system) and manual works where required. Time spent in these activities is used to calculate cost.

TPD: personae development trainings are regular feature of Silver lake industry. Opportunities are given to employees to go outside and attend seminars while in house training sessions are also organized with well known trainers from industry and academia. Training expenses are recorded to calculate TPD cost,

VD: design verification and test runs techniques are used for new product development. Average time period for the test run is worked out. Man power cost on average monthly bases is estimated. Utility consumed and man power utilized is summed up yo record cost of VD.

QSDM: Food safety management system, Quality Management and Environmental management system are managed and maintain by KIMS. Middle managers and top managers played their part to develop the systems. Overall time spend on the system management and maintenance along with petty expense incurred is used to calculate such cost.

QR:

MIS system generates reports in integration with Data base Management system. Man power consumed and Actual cost incurred is recorded on monthly bases.

IP: