Cost of Quality
Cost of Quality
Quality cost
A quality cost is considered to be any cost
that the company would not have
incurred if the quality of the product or
service were perfect.
Cost of Quality
Quality costs
Total quality costs are the sum of
prevention costs, appraisal costs, and
internal and external failure costs.
Cost of Quality
Quality costs increase over
time
Failure Costs
Liability costs
Failure found by customer
Field repair costs
Failure found at installation
Failure found at final inspection
Failure found at onset of manufacture
Failure found during design phase
Prevention Costs
Time when failure found
Cost of Quality
Hidden Costs of Poor
Quality
Reprocessing
Customer returns
Rejects
Warranty expenses
Lost sales
Loss of goodwill
Overtime to correct errors
Extra inventory
Process downtime
Delays
Premium freight costs
Extra process capacity
Cost of Quality
Balanced Score Card
TQM Element
Customer
satisfaction
Internal
performance
Financial Measure
Non-financial Measure
Results of customer
satisfaction survey.
External failure cost.
On-time delivery.
Field service expense.
Number of customer
complaints.
Appraisal cost.
Internal failure cost.
Prevention cost.
Cost of Quality
Defect rates
Yields
Lead times
Idle capacity
Unscheduled machine
downtime
Traditional Model
Total quality costs
Cost per good
unit of product
Failure costs
Cost of appraisal
plus prevention
0%
Quality of conformance
100%
Emerging COQ Model
Cost per good
unit of product
Total quality costs
0%
Failure costs
Cost of appraisal
plus prevention
Quality of conformance
100%
COQ as motivator


Companies under TQM do not focus on
quality cost minimization.
Quality improvement projects tend to
focus on zero defects or defect reduction
to the six-sigma level.
The 1-10-100 Rule
Prevention
$
1
Correction
$
10
Failure
$
$
$
100
COQ Theme



Costs are not incurred or allocated, but
rather caused.
Cost information does not solve quality
problems, nor does it suggest specific
solutions.
Problems are solved by tracing the cause
of a quality deficiency.