Capital resource allocation for strategic quality management Online publication date: Mon, 25-May-2009
by Stefanos A. Andreou
International Journal of Technology Management (IJTM), Vol. 6, No. 3/4, 1991
Abstract: Product and process quality is of critical importance in today's manufacturing environment. New technologies can create significant opportunities for quality improvements, which in turn could result in increases of future profitability. Thus, there is a need for systematic evaluation of investment alternatives and trade-offs. Traditional capital budgeting methods should be augmented to establish better quantitative approximations of the benefits and costs of quality, which are often treated as intangible in today's capital appropriation proposals. A financial evaluation framework is proposed that integrates recently developed techniques for quantifying the impact of quality improvements. The techniques that are discussed include: (i) a new overhead allocation method that uses quality cost drivers; (ii) modern finance principles that help quantify growth opportunities created by quality differentiation; and (iii) empirical studies that link quality with market share and profitability.
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