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In a world of ever increasing competitiveness, it is imperative that Managers maintain effective control of their companies.
This dissertation is dedicated to the research and philosophies of a committed group of people from all the corners of the world who serve on the International Organization for Standardization working group and are assigned the responsibility of developing an international standard for the Economics of Quality. Their approach to the formidable task of developing an international standard has been exemplary in that, although we had differing view points, we were always able to achieve consensus. This dissertation can be used to understand the concepts of the International Standard which should be published in 1996. In the preparation of this dissertation, I would like to extend my thanks and gratitude to the following people for their support.
To SABS who invited me to represent South Africa at ISO on the subject of Economic Effects of Total Quality Management. To my wife Rencia, Gerhard, Johann and Liezl who are proof of a family that shows love and understanding. Economics of quality has been with us for many years and the concept of prevention, appraisal and failure costs has been taught to students for many years. This chapter is devoted to the technical aspects of working groups as this is not commonly known in industry and it is important that industry should know where International Standards originate from and to give their support to national institutions such as the South African Bureau of Standards, British Standards Institution etc.. As ISO 9000 started being adopted by many countries a need for more specific guidelines on the various elements of ISO 9000 developed. It is usual that the working group be reasonably limited in size, as too many members can compromise the effectiveness of the group.
Participating members are the experts appointed to develop the standard, whilst observing members are exactly as to what their status is defined. These administrative powers of the convener are essential in order to ensure continuance of group activities. The primary duty of a working group is the development or systematic review of International Standards. The progress of the working group is made known through periodical progress reports to the technical committee.
Figure 2 depicts the sequence of project stages through which the technical work is developed and gives the name of the document associated with each project stage. A working group project can take several years and therefore there is a time limit of two years for a working draft, a committee draft within five years and publication within seven years. Not all of industry is aware of the fact that ISO quality management system documentation consists of more than just ISO 9000-1 to 4, 9001, 9002, 9003 and 9004-1 to 4.
ISO 9000 [2] family of documents of which ISO 9001, [3] 9002 [4] and 9003 [5] are mandatory standards to be complied with if companies wish to achieve accreditation under the listing scheme.
At present there is only one ISO standard that has been published as a national standard, ISO 9000-1 [1].
There is only one standard and that is ISO 8402 - Quality management and quality assurance - Vocabulary [8]. This chapter was devoted to giving the reader an understanding of how International Standards are developed and why ISO standards are so important and necessary for international trade. Industry has tried to look at the concept of economics of quality for many years as a cost reduction tool and have applied the PAF model (Prevention, Appraisal and Failure costs) with very limited effect. The need for an International Standard from ISO was proposed with the above concepts in mind.
During the meeting at the Surfers Paradise in Australia, The working group refined the introduction of the document. This International Standard is intended to provide guidance to persons carrying responsibility for acquiring and fulfilling customer requirements.

In every organization the economics of Total Quality Management will also cover the aspects of "Grade". This introduction and scope has been carefully worded by the working group to ensure that users become aware of the fact that quality is everybody's business and can be applied by all whether in industry or social services. Cost of conformity - Cost to fulfill all of the stated and implied needs of customers in the absence of failure of the existing process. Good examples are government or local institutions that render social service to the communities that they serve.
Total quality management must not be seen as a tool but rather as a philosophy that underscores the corporate strategy of all organizations.
Total quality management extends beyond the scope of quality control, quality assurance, quality management and total quality.
Teams are essential within an organization as they are the most suitable vehicle within which problem solving and implementation can be achieved. Total quality management emphasizes that everybody in the organization must have the tools and a system to appraise their own performance, act upon the results, review and continuously improve what they are responsible for. Internal markets addresses the establishment or creation of a market (Customer) responsive organizational culture. Leadership in terms of total quality management must be inherent in quality committed senior management in order to ensure that the principles of total quality management are continuously implemented. Therefore it can be said that total quality management means managing the whole organization and extend relationships with customers and suppliers. In addition to reducing internal costs, a comprehensive improvement program can increase the gains of an organization. Satisfier factors are expected conditions or events which are proportional in their effects on customer satisfaction.
Delighter factors are any practices, product features, services or attributes which are very positive to the customer when experienced but were not expected or specified.
The author disagrees with the use of the words; dissatisfier, satisfier and delighter as they are phrases developed by an individual and therefore advocates that individual's philosophy. To achieve customer satisfaction it is important to have some form of customer supplier alliance with the motivation lying not necessarily in the short term, but in the projected long-term benefits derived from the skills of the supplier and the strengths of the customer.
It will be noted that the above criteria is part of the principles of total quality management and the element of trust in a customer-supplier alliance is a significant factor. By adapting a tree diagram, [1] as shown in figure 6, to the organization the main potential benefits can be shown hence enabling the most effective use of resources. The person responsible for the process, and those operating it, should own the measures and the costs. Total quality management became an attainable objective when the people who were the driving force moved into senior management positions. To have a positive attitude means there is a good culture and this is the foundation of a successful total quality management program. The employee must be able to make decisions with regard to the quality of work, working conditions, better means of performing the task.
Measurement and actions should be meaningful and support the strategy and objectives of the organization. In order to manage the improvement, the establishment of goals and measurable actions are required to allow management to measure, analyze and take effective action.
Pricing is one of the many factors which influence business success and yet is one of the most neglected when it comes to matters such as market sensitivity. Therefore an organization should develop a value-orientated approach to its pricing policy.

A price objective of return on revenue in marketing is desirable when the organization is the low-cost producer in a stable market and the profit on sales is high and the market can absorb the volume at the price established. To maintain price stability in the market is the desire of all organizations as it eliminates the need to review price schedules at short intervals. As pricing objectives in marketing, market prestige and image are normally associated with products that have many intangible benefits associated with them. To meet the competitive price is a popular strategy in marketing where the product is in a price sensitive market or where it is viewed as a commodity. Implementation of a system to measure quality related activities must fall within the scope of a quality policy that has been written and committed to by the highest level of management.
The objective of measurements should be to improve new and existing products or services, gain new customers, defining customer needs and to improve the total quality management system of the organization. The measurement system that will be discussed now is the basis upon which all economics of quality systems should be developed. It is recommended that cost data be extracted from the existing financial control system, complimented by operational data from internal and external sources. Activity Bases Costing is a relatively new concept that fits in well with the philosophy of this dissertation and the reader should take this system into serious consideration. Depending on the size of the organization, each department or section will have several processes within. The identified process is isolated as a discrete set of activities and given a name or code. Responsibility for the administration of the system should be shared with the accounting and quality functions. As stated you should supply top management with only the bottom line figures of the management report.
It is suggested that the economics of quality review should become part of your monthly or quarterly quality management meeting.
The investment in information could be considered as a once off cost that is expended in developing the system. The objective of information to management is to monitor the performance of key performance indicators and to manage any deviation from plan. Are there any indicators of business performance or change which could be better quantified? Therefore to meet the information requirements that relate to performance measurement it must be decided as to what has to be measured, how, when and what values should be attached to the measurements. Volume measurements are normally in terms of units processed or inputs of raw material, electricity or gas. Accuracy measurements can be related to quality, rejects, errors or level of conformance to requirements. Monetary measurements are usually expressed as costs per unit, total costs or profits before or after tax. It must be stressed again that this dissertation must not be used as a standard, but rather as a complementary document. P J Barnard of UCAR France, who during his time at EMSA advocated the philosophy of continuous education and improvement of people. EMSA has since changed its financial system to a new system that gives a better picture of actual costs and has resulted in significant cost savings.

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