Cost of Quality and Financial Performance of Small and Medium Enterprises

Abstract

This study delves into the complex interplay between the cost of quality elements—specifically, prevention, appraisal, and failure costs—and the financial performance of Small and Medium Enterprises (SMEs). By employing empirical analysis based on 246 completed questionnaires from various sectors within Ghana's SME landscape, the research endeavors to illuminate the critical associations between these cost factors and financial outcomes. The Partial Least Structural Equation Model (PLS-SEM) technique was utilized to scrutinize these relationships. The findings reveal a significant positive correlation between prevention and appraisal costs with improved financial performance, while failure costs exhibit a negative association. These outcomes substantiate the vital role of resource allocation and strategic management of quality costs in shaping the financial health of SMEs. The implications extend to both academia and practical business strategies, highlighting the need for a balanced approach in resource allocation and the significance of preventive measures in fostering enhanced financial performance for SMEs. The study underscores the importance of proactive quality management and strategic decision-making in driving the financial success and sustainability of SMEs in today's competitive business environment.