Curious Cat Management Improvement Library - Dictionary

Taguchi Loss Function - a diagram of the loss to society as the actual results differ from a target value. The Taguchi loss function aims to capture not only the loss to the customer but to the company and society at large that can be measured in cost. The loss function does not mean to capture what cannot be quantified. For that reason the loss function would include the increase in pollution as a cost to society. In general the loss function is shown as a parabola with the point of minimal loss directly over the target value. While it is drawn as an symmetric parabola in most examples it need not be as the loss function in an actual case will be whatever the actual loss would be and could be discontinuous and asymmetric.
One extremely important concept that the function displays is the weakness of using specifications that treat any result between the values that are not rejected as equal. Most often while the customer may accept a result within the specification they become less satisfied and more likely to find a different supplier as results move from their desired target.
It is my (John Hunter) belief that this concept has even more value when you look at the loss whether or not it can be measured. While it would be nice to be able to measure all costs it is often not possible and including those known but unmeasurable losses when making decisions is worthwhile. And while paying attention to the value for the loss to society is worthwhile I think it would also make sense to calculate the loss function as it relates to just the customer and the provider (as well as subsequent customer in the case where intermediaries exist).

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