Another visual report that I use in Quality Control is a cause and effect analysis, specifically I like to use Fishbone Diagrams. As seen in the below analysis, we can calculate the scrap percentage of a specific run and similar to the Control Chart that data can be analyzed by a cost accounting to obtain the actual cash value impact to the company.
Following the collection and dissemination of this information to management, they can then assess the financial impact to the company, based on the “cost of quality”. The main areas that I see where quality has a direct impact on the financial costs include; Prevention (Quality Assurance), Appraisal (testing) and Failures, both Internal and External (Quality Control).
Management needs to set quality levels and standards based on many factors. First the customers’ product requirements and specifications need to be met, along with federal, state and local demands (if applicable). Then management needs to determine how close to that quality line they are willing to run at, understanding that the further they move away from that point the more quality (work) is required (= more costs).
For example; an analysis could show that a minimum of 10% of all products need to be inspected to meet the minimum level of quality. For each 1% of additional product they choose to inspect there is a cost of $10,000 associated. Looking at historical financial analysis, management can see that a recall, due to bad parts, would cost $50,000. Management would then be able to weigh the risks they are willi...
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...a logical sequence as some of the information and data are needed for the next step in budget calculations. Sales forecasting and the sales budget are always completed first, followed by the; Pro forma Income Statement, Production Budget, Capital Assets, Department Budgets, Cash Budget and the Balance Sheet.
Product Managers and Sales Managers forecast the sales based on demand and industry trends. Forecasts are usually done on a monthly basis projected out for a year. For my company this is done by the VP of Sales. As the Operations Manager I work very closely with our Cost Accountant on the Pro forma Income statement, the production budget and the cash budget. The Pro Forma Income Statement is created from the forecasted sales volume, pricing and the cost structure of the company. I consider this an anticipated statement of income for the next fiscal year.
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