Cost

Cost of Quality:
What is it? |
The price of nonconformance (Philip Crosby) or the cost of poor quality (Joseph Juran), the term 'Cost of Quality', refers to the costs associated with providing poor quality product or service. |

Why is it important? |
Quality processes cannot be justified simply because "everyone else is doing them" - but return on quality (ROQ) has dramatic impacts as companies mature. Research shows that the costs of poor quality can range from 15%-40% of business costs (e.g., rework, returns or complaints, reduced service levels, lost revenue). Most businesses do not know what their quality costs are because they do not keep reliable statistics. Finding and correcting mistakes consumes an inordinately large portion resources. Typically, the cost to eliminate a failure in the customer phase is five times greater than it is at the development or manufacturing phase. Effective quality management decreases production costs because the sooner an error is found and corrected, the less costly it will be.  |

When to use it? |
Cost of quality comprises of four elements:   1 | External Failure Cost
cost associated with defects found after the customer receives the product or service ex: processing customer complaints, customer returns, warranty claims, product recalls. |
2 | Internal Failure Cost
cost associated with defects found before the customer receives the product or service ex: scrap, rework, re-inspection, re-testing, material review, material downgrades. |
3 | Inspection (appraisal) Cost
cost incurred to determine the degree of conformance to quality requirements (measuring, evaluating or auditing) ex: inspection, testing, process or service audits, calibration of measuring and test equipment. |
4 | Prevention Cost
cost incurred to prevent (keep failure and appraisal cost to a minimum) poor quality ex: new product review, quality planning, supplier surveys, process reviews, quality improvement teams, education and... [continues]

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