COST OF QUALITY

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 Cost of quality

Cost of quality (COQ) is defined as a methodology that

allows an organization to determine the extent to which its
resources are used for activities that prevent poor quality.
The “cost of quality” isn’t the price of creating a quality
product or service.

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Every time work is redone, the cost of quality increases.

The reworking of a manufactured item.

The rebuilding of a tool
The reworking of a service

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 Quality Gurus about cost of quality

Historically, business managers have assumed that increased quality is
accompanied by increased cost; higher quality meant higher cost.

This concept was questioned by quality pioneers like Juran and
Feigenbaum.

Juran examined economics of quality and concluded the benefits
outweighed the costs.

Feigenbaum introduced “total quality control” and developed the
principles that quality is everyone’s job,

In 1979 Crosby introduced the new popular concept that “quality is
free”.

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 Different views about Cost of Quality


Higher quality means higher cost

The cost of improving quality is less than the resultant savings

Quality costs are those incurred in excess of those that would have been
incurred if product were built or service performed exactly right the first
time

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Cost of Quality = Cost of Prevention + Cost of Appraisal +Cost of Failure

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 Prevention costs

Costs associated with all activities designed to prevent defects in product or

service.
These include :
• The direct and indirect costs related to quality training and education, pilot
studies, quality circles, quality engineering, etc.
• These costs are used to build awareness of the quality program and to keep
the costs of appraisal and failure to a minimum.
• Prevention costs are all costs incurred in an effort to “make it right the first
time”.

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 Appraisal costs

• The costs associated with measuring and evaluating the product or service
quality to ensure conformance.
• These include the cost of inspection, test or audit of purchases,
manufacturing or process operations and finished goods or services.
• The direct and indirect costs of the various tests & inspections to determine
the degree of conformity are included in this category.

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 Internal failure costs

Costs incurred prior to the shipment of the product or the delivery of the
service. These costs are associated with defects that are found prior to
customer delivery.
• These include the net cost of scrap, re-inspection and retest, downtime due
to quality problems, opportunity cost of product classified as seconds, or
other product downgrades.
• These costs would disappear if there were no defects in the product.

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 External Failure Costs

• The costs of discovered defects occurring after product shipment or service

delivery.
• These costs include warranty charges, customer complaint adjustments,
returned merchandise, product recalls, allowances, and product liability.
• They also include the direct and indirect costs such as labor and travel
associated with the investigation of customer complaints, warranty field
inspection, tests and repairs.

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The general behavior of the four quality cost components :
• Prevention costs remain relatively consistent as the awareness of TQM is
built and maintained.
• Appraisal costs will initially increase as inspection programs are initiated but
should eventually level off.
• Internal failure costs will initially increase as the inspection programs are
implemented, but should the gradually decrease with learning.
• External failure costs should continue to fall as various TQM programs are
brought on line.

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