Title: Capital resource allocation for strategic quality management

Authors: Stefanos A. Andreou

Addresses: Staff Research Scientist, GM Research Laboratories, 47, RANB 334, Warren, MI 48098, USA

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.

Keywords: capital resource allocation; strategic quality management; strategic planning; cost drivers; financial analysis; market share; profitability; quality improvement; overhead allocation; capital budgeting.

DOI: 10.1504/IJTM.1991.025899

International Journal of Technology Management, 1991 Vol.6 No.3/4, pp.415 - 426

Published online: 25 May 2009 *

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