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, that appraise the quality of products or services, and that result from internal and external failures. Having such information allows an organization to determine the potential savings to be gained by implementing process improvements.
Quality-related activities that incur costs include:
Prevention costs: Costs that are planned and incurred to prevent or avoid quality problems, including the development, implementation, and maintenance of the Quality Management System (QMS), and includes the specifications for inspection and training.
Appraisal costs: Costs associated with measuring and monitoring activities related to quality, including field QC inspections, equipment calibration, internal audits of the QMS, as well as the assessment and approval of suppliers and subcontractors.
Internal failure costs: Costs incurred to remedy defects discovered before the product or service is delivered to the customer, including delays, downtime, waste, defective materials, re-designing, rework, and/or failure analysis.
External failure costs: Costs incurred to remedy defects discovered by customers, including field repairs and servicing, warranty claims, work and costs associated with handling customers’ complaints, environmental costs, and investigating rejected materials.
The sum of these costs equals the total cost of quality. Unfortunately, many of the costs of quality are hidden and difficult to identify by formal measurement systems. To reduce the cost of poor quality, the cost of good quality needs to be increased, meaning higher investments in any kind of process improvement: inspection, testing, evaluation, training, etc.
Quality is essential. There is a cost to attaining and improving quality. There is a bigger cost in failing to deliver quality work.