Cost of Quality Calculation in an Innovative Strategic Industry. Evidence from the EU Defence Sector

Abstract:

The research aims to test an original cost of quality (CoQ) calculation in an innovative organisation operating in the European defence industry. Our methodology embraces the identification, classification and estimation of CoQ – based on business process mapping and accounting data exploration – as well as a structure and ratio analysis thereof. The main findings show that CoQ constitutes over 39% of operating costs of the company which is the subject of our study, and they are present in nearly all business processes. We find a very high share of compliance costs (>84% of total CoQ), and only a minor percentage of non-compliance costs (<8%), which is a positive phenomenon. The processes that generate most CoQ are the design and development process and the maintenance process. The presented ready-to-use tool allows for the measurement and management of CoQ, and can contribute to controlling and value-based management solutions. Being the first such case study in the high-tech defence industry, our research paper not only fills the gap in academic literature, but has valuable implications for practitioners as well.