Thursday, November 1, 2012

Intangible Costs

In class, when discussing quality costs, we broke it down into the following types of costs; preventative, internal failure, external failure, audit, and intangible.  I will focus mainly on the intangible costs, or the costs that are very grey because they are hard to quantify.  Intangible costs can be caused by lack of consumer confidence because of a major failure in a product or service.  The lack of confidence will reduce the number of buyers as well as temporarily ruin a reputation (as BP and Toyota have recovered fairly well from the oil spill and brake issue, respectively), but what is the average time for a company to recover?  Does it take longer for a smaller company to recover their image than a larger company?  To answer these, one would have to do case studies over many of these companies focusing on the balance sheets made public by these companies.  They’d have to look at the revenue before and after the incident, and plot it graphically.  Another way to look at it would be through stocks.  Stocks would be a great indicator of consumer trust with a company, and play into intangible costs.  The biggest limitation with these options is that they are only available for publicly traded companies.  Another problem is that the intangible costs can only be analyzed post incident, assuming the company recovers fully.  The easiest way to overcome this problem of intangible costs would be to avoid it poor quality to start, focusing more on continuously improving the process.


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