What are your Nonconformance Costs Based On

M

munkee

#1
Hi all,

I have got my head stuck in a mess here when trying to quantify a nonconformance cost.

Basically I have split down my nonconformances in to cost categories. These categories managers can assign costs to in order to get a full cost of nonconformance against an event occuring.

This should work perfectly. However I am unsure as to how companies should quantify a cost figure against hours lost.

For example a nonconformance event will incur a cost of investigation, based on hours. Since someone has had to investigate the nonconformance they are wasting time which they wouldnt have to if the nonconformance did not occur. During their investigation they may need to liase with another department, where they also spend x amount of hours wasted due to the nonconformance.

My question is, what rate should you go off for these lost hours.

  • Is it as simple as the hourly rate of the person?
  • Is it the cost that department charges to the customer? (Since essentialy a nonconformance comes out of your profit, which comes from your bid to the customer)
  • Is it based on the budget of that department? (The cost per hour of that department to the company)
I am sure there are more possible rates too.. but which should be used?

Any help is appreciated.
 
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John Broomfield

Staff member
Super Moderator
#2
Hi all,

I have got my head stuck in a mess here when trying to quantify a nonconformance cost.

Basically I have split down my nonconformances in to cost categories. These categories managers can assign costs to in order to get a full cost of nonconformance against an event occuring.

This should work perfectly. However I am unsure as to how companies should quantify a cost figure against hours lost.

For example a nonconformance event will incur a cost of investigation, based on hours. Since someone has had to investigate the nonconformance they are wasting time which they wouldnt have to if the nonconformance did not occur. During their investigation they may need to liase with another department, where they also spend x amount of hours wasted due to the nonconformance.

My question is, what rate should you go off for these lost hours.

  • Is it as simple as the hourly rate of the person?
  • Is it the cost that department charges to the customer? (Since essentialy a nonconformance comes out of your profit, which comes from your bid to the customer)
  • Is it based on the budget of that department? (The cost per hour of that department to the company)
I am sure there are more possible rates too.. but which should be used?

Any help is appreciated.
munkee,

The reason for measuring these hidden costs is to figure out where best to invest in prevention.

Accordingly, you should not apportion all of the overhead costs to the costs of getting work right the first time.

Therefore, apportion the cost of overhead to the nonconformity costs as a percentage of all the hours worked.

Two standards may help:

BS 6143 provides two ways of doing this using the process and PAFF models.

Personally I prefer the process cost model which is similar to the work of Phil Crosby on POC and PONC who reported 40% of revenue may be consumed by the price of nonconformity.

2 days a week!

John
 
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