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Quality knowledge base - article QA-0026
Updated on 05-01-2017

Cost of Quality

The term "Cost of quality" seems to be very simple and self-explaining, but the background is more complex. Many stakeholders in various sectors use it incorrectly, and think that cost of quality is equal to the cost, which comes from producing non-conform parts. Of course this is not true, and cost of quality means much more.
First we can summarize the big three sections of Cost of Quality, which are:
  • All investment made to prevent non-conformance, which is the proactive avoidance of failures.
  • Assessment and appraisal of products, which means a reactive filtering of non-conform products.
  • All costs, that arise for failing to meet customer requirements, and a reactive measure in order to correct issues that has already happened.
The first two sections are together called as "cost of conformance" or "cost of good quality (CoGQ)", while the third section is equal to the "cost of non-conformance" or "cost of poor quality (CoPQ)".
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Key Features
In order to categorize quality costs, each of them must be analysed based on its origin, intention and aim. As a general formulae: CoQ = CoGQ + CoPQ. The following structure shows the "Cost of Quality" summary, including examples:
The quality cost structure
Cost of Quality
Cost of Good Quality (CoGQ) / Cost of conformance Cost of Poor Quality (CoPQ) / Cost of non-conformance
Prevention costs Appraisal and assessment costs Internal failure costs External failure costs
Quality planning, APQP In-line testing Re-testing Complaint handling
Design validation In-line inspection Rework Warranty costs
Process verification Incoming inspection of purchased materials Re-design Recall actions
Proactive quality training Process audits, Run@Rate and trial runs Shortages Additional administration costs
Quality improvement projects Product audits Delays and downtime due to quality issues Reputation / prestige loss
Statistical Process Control (SPC) Supplier evaluation Failure analysis and problem solving
Error proofing, Poka-Yoke solutions Scrapping
Supplier development Administration costs
Source:; Philip B. Crosby: Quality Is Free
Increasing CoGQ can decease the whole cost of quality. How can it be? The answer is easy. If you spend more money (and resources) up-front during the planning and design phase, you can save much more in the serial phase, by decreasing the internal and external failure costs. So the relation between CoGQ and CoPQ is not linear.
Example: you invest $1 million more in the design phase, which results better product-, process design and testing concept, so you may avoid $4 million of failure cost during the product life-cycle.
Both the CoGQ and the CoPQ curves are exponential. As you invest more in CoGQ, you improve your quality level, however it increases exponentially, you spend more and more to reduce your failures, and produce only good products. On the other side, your CoGQ indirectly decreases your CoPQ. The two curves have a cross, which is a theoretical break-point, where your cost / quality is optimized. Over this point (going right on the X axis), your CoGQ is increasing on a higher rate compared to the reduction of your CoPQ. Of course it doesn’t mean you cannot invest in quality over the optimum. Quite a lot of companies that produce premium products invest in quality over the breakpoint (optimum), and this justifies higher product price. This is one of the reasons, why premium products cost more than others with lower quality.
Juran is discussing cost of quality from the optimum standpoint (there is an optimal quality level with the lowest quality cost), however Schneiderman goes further with the idea that is aiming zero defect through continuous improvement. Perhaps going from 3 ppm to 1 ppm may have no high incremental benefit, but brings organizational pride, reputation, spillover into other areas, and experience in problem solving. In addition, according to Schneiderman: the optimum quality level equals zero defects.
Quality Management
The concept of quality cost (Source: Joseph M. Juran’s Quality Control Handbook; Optimum Quality Costs and Zero Defects: Are They Contradictory Concepts? by Arthur M. Schneiderman)
Many companies only measure and analyse internal and external failure costs, however the cost of quality analysis should include all quality related costs. There are software and research companies for this purpose.
Source:; Joseph M. Juran; Arthur M. Schneiderman
  • CoQ stands for Cost of Quality.
  • CoQ represents all cost related to quality, including prevention, appraisal, internal and external failure costs.
  • CoQ can be unfolded to Cost of Good Quality (CoGC) and Cost of Poor Quality (CoPQ).
  • Up-front planning, and focus on failure prevention can lead to multiplied savings on failure costs.
Relevant Topics
Project Planning and Elaboration
Advanced Product Quality Planning (APQP)
Project Planning and Elaboration
Product Engineering Process (PEP)
Project Planning and Elaboration
Quality Function Deployment (QFD)
Project Planning and Elaboration
Failure Mode and Effects Analysis (FMEA)
Project Planning and Elaboration
Control Plan (CP)
Project Planning and Elaboration
Quality Review / Milestone
Project Planning and Elaboration
Advanced Product Quality Planning (APQP)
Process Control and Analysis
Acceptance Quality Limit (AQL)
Process Control and Analysis
Incoming Quality Inspection
Process Improvement and Problem Solving
Problem Solving
Process Improvement and Problem Solving
Quality Claim Management
Process Improvement and Problem Solving
Root Cause
Process Improvement and Problem Solving
Pareto Analysis
Process Improvement and Problem Solving
Containment Action
Process Improvement and Problem Solving
Corrective And Preventive Action (CAPA)
Process Improvement and Problem Solving
Poka-Yoke (Error Proofing)
Process Improvement and Problem Solving
Failure Statistics
Fact sheet
Information about the cost factors of quality and their interaction.

Topic / Article: Cost of Quality
Term Category: Project Planning and Elaboration
Business Sector: All
Timing: N/A
Files, Attachments: None
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