COST OF QUALITY

By: Jack B. ReVelle, Ph.D.

(This article is provided courtesy of the author Jack B. ReVelle, Ph.D.)

The Cost of Quality or COQ has for many years been a tool primarily used within the “Quality World,” i.e., within the province of quality professionals. It is the total cost associated with making, finding, repairing, or preventing defects. The following categories are associated with these costs: internal failure costs, external failure costs, appraisal costs, and prevention costs.

  • Internal failure costs include all the costs associated with the following:

scrap, rework, retest, downtime, yield losses, and disposition of nonconforming material

  • External failure costs are those associated with defects detected after shipment to the customer:

complaint adjustment, returned materials, warranty charges, and concessions due to nonconforming product

  • Appraisal costs are those associated with evaluation of product condition or status during its first time passage through the manufacturing and assembly process:

incoming material inspection and test, in-process inspection and test, metrology, materials or services consumed in the appraisal process, yield losses, and disposition of nonconforming material

  • Prevention costs are those incurred to keep failure and appraisal costs to a minimum:

quality planning, new product review, training, process control, quality data acquisition and analysis, and quality reporting

COQ is a term commonly known and used by quality professionals; but from company to company it is known by a variety of different names to accommodate the idiosyncrasies of organizational officers. One former client refers to it as the Cost of Poor Execution (COPE).

Whatever a company chooses to call it, COQ is an important indicator of the effectiveness of a company’s quality management system. It is important to relate the Cost of Quality to other operational data, e.g., COQ as a percent of sales, or compared to profit.

Another sound move is comparison of the various elements or categories of COQ with each other. For example, compare the relationship of prevention costs with external failure costs. This data can be effective as indicators to assist in establishing priorities for improvement activities or evaluating operational effectiveness.

About: Jack B. ReVelle, Ph.D.   

 Dr. Jack B. ReVelle provides his advice and assistance as a consulting statistician.  His professional credentials include over 40 clients as well as over 100 books, handbooks, videos and software packages. Dr. ReVelle received his B.S. in Chemical Engineering from Purdue University and both his M.S. and Ph.D. in Industrial Engineering and Management from Oklahoma State University.  Prior to earning his Ph.D., he served 12 years in the U.S. Air Force.  During that time, he was promoted to the rank of major and was awarded the Bronze Star Medal while stationed in the Republic of Vietnam as well as the Joint Service Commendation Medal for his work in quality assurance with the Pentagon-based Defense Atomic Support Agency (DASA).  He has been selected as a Fellow by the American Society for Quality, the Institute of Industrial and Systems Engineers and the Institute for the Advancement of Engineering. In 2006 Dr. ReVelle was awarded the Oklahoma State University Lohmann Medal in recognition of his contributions to the art and science of quality assurance. In 2012 Dr. ReVelle was awarded the ASQ Shainin Medal for the development and application of creative and unique statistical approaches in the solving of problems relative to the quality of a product and service. In 2015 he was awarded the ASQ-Los Angeles Simon Collier Quality Award and this year he was inducted into the Oklahoma State University College of Engineering, Architecture, and Technology Hall of Fame for his lifetime of dedication to quality and statistics.