A few days ago, in conversation with Vicki Hall (the Institute’s most recently elected fellow), the subject of quality came up. Vicki’s a Business School professor and she was looking for some way to use a game to teach people about how to manage and improve quality.
In the course conversation, Taguchi’s loss function was mentioned. Taguchi was one of the many Japanese who had the opportunity to learn from W. Edwards Deming and Walter A. Shewhart (names worth googling if you don’t know them) after the Second World War, and his thinking contributed to the birth of “continual improvement”, or kaizen, among other things.
Taguchi held that quality decreases as variation from the target specification increases. In other words, “loss in value” increases as variation increases.
If you think of archery, when you hit the bull’s-eye your quality is “as required” and there is no loss …but the more you miss the bull’s-eye by, the greater your loss even if you are still hitting the target (are within “tolerance”) and not missing it altogether.
As it’s a useful way to explain the thinking behind the Taguchi Loss Function (the name of which is enough to scare people) so I thought it would be good to share it.