Abstract

Malmi et al. (2004) argue that the cost of quality (COQ) literature typically deals with manufacturing or service organizations in continuous or repetitive business processes in which identical or similar activities and work phases are repeated in the same sequence or order, batch after batch or customer after customer. Many modern businesses, such as the software business, are outright project based, or operate like a string of semi-independent projects characterized by unique resources, customized activity or work sequence order, and a predefined start and finish. COQ measuring and reporting are traditionally based on ex post calculations. In this study, an idea of real-time quality cost measurement will be developed and tested. The literature on real-time quality cost accounting is limited or even non-existent. The dissertation investigates whether it is possible to measure quality costs as a real-time basis in the software industry. The purpose is to develop a model for measuring quality costs on a real-time basis in software development. This is achieved by seeking answers to the research question how to measure quality costs on a real-time basis in the software industry. The research extends the current literature in three main respects. First, the study presents the idea of measuring quality costs in real-time basis. Second, a contribution is made by investigating how the characteristics of software business impact on the accounting of quality costs by presenting the nature and distinction of software business as well as its implications for software quality and applying quality cost measurement to the software business. Third, this study is expected to make a contribution by investigating how to use quality cost measurement as a management accounting tool in modern software business environment.

The constructive research approach (CRA) proposed by Kasanen et al. (1993) is used in a case company, A, that develops and produces packaged software used in embedded products. Since it is not typically possible to pass semi-strong or strong market tests within a medium-term time span, the construction is tested by using more detailed nuances within the weak market test category suggested by Labro and Tuomela (2003) in order to analyse the level of progress of the construct. The possibility of constructing a real-time cost of quality measurement system developed in Case A is also tested in another case company (Case B) to make the weak market test stronger, and the boundary conditions how to construct such a system in a totally different working environment are charted. The results indicate that such a system could be constructed irrespective of the cost accounting environment or the software used. The anticipated contribution arises from the fact that the construct is a novelty that leads to a new means of quality cost accounting in software business (cf. Lukka 2000).