Abstract

Since almost a century ago, quality has been a key factor of any business, and managers are
continuously taking decisions to reach the adequate level of quality in order to be competitive.
Therefore, measuring Cost of Quality (COQ) is a critical but challenging task. According to both
academicians and practitioners, the COQ approach seems to be much more used and explored among
manufacturing companies rather than among service organizations. One of the main reasons is the
existence of a tangible product in manufacturing, which makes the measurement of defects, rework,
and scraps, and the standardization of one single model for different companies relatively easy, while
defining similar cost categories is quite challenging in service company settings. Even though the
literature suggests a possible applicability of the COQ model to services under the concept of both
product and process performance, no practical examples of measuring COQ from the product
performance perspective in service companies could be found (with an exception of software
companies which present some similarities with manufacturing). Therefore, this thesis explores the
possibility of the application of the COQ model under the concept of product performance to a
service company, and develops a case study in three Colombian banks. As a result, this research
proposes an adapted model of COQ for the banking system that could stand as an operational index
offering a practical insight about quality costs to managers. The model integrated the classical PAF
(Prevention-Appraisal-Failure) method with significant exogenous and endogenous variables that
affect quality in banks. Furthermore, some statistical analyses were performed in order to validate the
used data, to correlate operational indices and quality costs, and to identify the factors that have the
highest impact on these costs in banks.