Introduction to a Quality Tool
Ijaz yusuf (Pakistan)
Cost of Quality?
Cost of Quality (COQ), Price of Non
Conformance (PONC), Cost of Poor
Quality (COPQ), Quality Costing
(QC) and Quality Cost Analysis
(QCA) are the few names attached to
this well known toll as Juran said in
1951 “ Gold is the mine. Cost of
quality is the gold which is available
in the form of failure costs only
mining is required in the form of long
term investment since failure costs
usually constitutes 65-70% of
company’s quality costs, appraisal is
normally 20-25% and prevention is
5%.
The term “Quality Costs” is
associated solely with defective
products,
a) The cost of making defective
products
b) The cost of finding defective
products
c) The cost of repairing defective
products
d) The cost of avoiding defective
products
Cost of Quality is usually sum of
costs incurred to prevent nonconformances in products and
systems. In the post- WTO scenario,
where the cut-throat competition
prevails, market determines the price,
customer
pressurize
for
price
reductions and shrinking profit seems
the only choice. Cost of Quality is the
sole hope that can avert the situation
if it is implemented effectively. Cost
of Quality varies company to
company but if it is quantified
properly, it will immediately get the
attention at all management levels.
Why? When added together, the cost
of poor quality makes up as much as
10% to 30% of all costs.
High COPQ draws the management
attention to adopt certain measures.
High COQ acts as a change agent that
certain fundamental changes in
products and services are required to
reduce these high costs. COPQ helps
a lot to improve an organization’s
financial condition and set the
organization on the track of
improvement. If we chop off the tip of
ice burg of cost of poor quality the
most obvious costs are customer
returns, waste, rejects, rework, testing
costs, product recalls, inspection
costs, yield losses and most hidden
costs are customer allowances,
planning delays, high time over.
Overdrew receivables, pricing or
billing errors, partially completed
sales
orders,
freight
charges,
complaint handling costs, excessive
field
service
costs,
excessive
employee turnover, warranty claims
etc.
prevent or reduce the risk of nonconformity or defect.
These costs of poor quality appear
due to poor performance and could
disappear entirely if every activity
performed without deficiency every
time. Major categories of Quality
Costs are Prevention Costs, Appraisal
Costs, Internal Failure Costs and
External Failure Costs representing
the elements of PAF model.
Step 2: Decide how to estimate the
costs.
Prevention Costs These are the cost
of any action taken to investigate,
The costs of quality is usually
interpreted in financial terms and
Appraisal Costs These are the costs
of evaluating the achievement of
quality requirement including the cost
of verification and control performed
at any stage of Quality Loop.
Internal Failure Costs These are
costs arising within the organization if
defects exist in the product prior to
shipment to customer.
External Failure Costs These are
costs resulting from failing to
conform to specified requirements
after the delivery.
Five Steps to Measure Cost of
Quality
Step 1: Identify the element of Costs
of Quality.
Step 3: Collect data and estimate
costs.
Step 4: Analyze results and diagnose
the reasons.
Step 5: Highlight the areas of
improvement.
translated in money form (language of
management). Followings are the
ways to interpret; percentage of sales
turnover, percentage of profit
margins, and percentage of all costs in
industries.
About Author
Ijaz Yusuf is working as a Manager
Productivity
Improvement
at
Packages Ltd. Lahore and he is the
Technical Editor of Magazine of
Quality and Productivity Society of
Pakistan. He can be contacted at:
ijaz_y@hotmail.com