Title: Visualising the cost of quality investment using equity breakeven point

Authors: Adedeji B. Badiru

Addresses: Air Force Institute of Technology, Dayton, OH 45433, USA

Abstract: The fully-burdened cost of quality management programs must be viewed from a systems perspective with respect to the value impacted on the organisation. What appears to be cost-effective or cheap in the present scenario may proof to be costly (or even disastrous) in the long run of market share with respect to customer perception. This paper presents an application of the equity breakeven point technique for graphical analysis of quality investments. The mathematical derivation of the equity breakeven point indicates the time when the unpaid balance on a capital investment is equal to the cumulative equity in the investment, thereby providing an a-priori insight into how long it might take to retire an investment loan on the strength of the accrued equity. This type of knowledge is useful for negotiating the terms of acquiring and/or managing large quality-oriented projects, with expected long-term impacts.

Keywords: quality investments; economic analysis; breakeven analysis; payback period; equity breakeven point; EBP; engineering projects; capital investment; amortisation; visualisation; cost of quality; CoQ; quality management; project management; investment loans; accrued equity.

DOI: 10.1504/IJQET.2016.081632

International Journal of Quality Engineering and Technology, 2016 Vol.6 No.1/2, pp.40 - 53

Received: 03 Aug 2016
Accepted: 07 Aug 2016

Published online: 17 Jan 2017 *

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