KC 1.3.2.1 - Cost of Quality & it's Components

Cost of Quality (COQ) is one of the very important sub domain of the Knowledge Domain-1 in the CSQA BOK. Getting this concept clarified is very important for any QA Professional and more importantly for CSQA aspirants. I am starting here with the definitions and the best possible sources here on COQ.

Cost Of Quality

The cost associated with the quality of a work product.

As defined by Crosby ("Quality Is Free"), Cost Of Quality (COQ) has two main components: *Cost Of Conformance* and *Cost Of Non-Conformance* (see respective definitions).

Cost of quality is the amount of money a business loses because its product or service was not done right in the first place. From fixing a warped piece on the assembly line to having to deal with a lawsuit because of a malfunctioning machine or a badly performed service, businesses lose money every day due to poor quality. For most businesses, this can run from 15 to 30 percent of their total costs.

Cost of Poor Quality - COPQ

COPQ consists of those costs which are generated as a result of producing defective material.

This cost includes the cost involved in fulfilling the gap between the desired and actual product/service quality. It also includes the cost of lost opportunity due to the loss of resources used in rectifying the defect. This cost includes all the labor cost, rework cost, disposition costs, and material costs that have been added to the unit up to the point of rejection. COPQ does not include detection and prevention cost.

There usually goes confusion between these two definitions COQ and COPQ.

Cost of quality (COQ) is actually a phrase coined by Philip Crosby, noted quality expert and author and originator of the "zero defects" concept, to refer to the costs associated with providing poor-quality products or services. Many quality practitioners thus prefer the term cost of poor quality (COPQ).

To illustrate the impact this can have on the workforce can not be underestimated. With a little imagination you could imagine the impact of storing all scrap for one year then presenting it as an "in-your-face" visual presentation tactic at a business improvement initiative.

Cost Of Conformance

(COC) A component of the *Cost Of Quality* for a work product. Cost of conformance is the total cost of ensuring that a product is of good *Quality*. It includes costs of *Quality Assurance* activities such as standards, training, and processes; and costs of *Quality Control* activities such as reviews, audits, inspections, and testing.

COC represents an organisation's investment in the quality of its products.

Cost Of Non-Conformance

(CONC.) The element of the *Cost Of Quality* representing the total cost to the organisation of failure to achieve a good *Quality* product.

CONC includes both in-process costs generated by quality failures, particularly the cost of *Rework*; and post-delivery costs including further *Rework*, re-performance of lost work (for products used internally), possible loss of business, possible legal redress, and other potential costs.

Cost of Quality (COQ )

1. Cost of Control (Conformance)

• Prevention Cost
• Appraisal Cost

2. Cost of not controlling (Non-conformance)

• Internal Failure Cost
  
• External Failure Cost

Wanna know the definitons more clearly? Here they are:

Four categories of costs contribute to an organization's overall COQ:

1. Internal failure costs - costs associated with defects found before the customer receives the product or service
2. External failure costs - costs associated with defects found after the customer receives the product or service
3. Appraisal costs - costs incurred to determine the degree of conformance to quality requirements
4. Prevention Costs - Costs incurred to keep failure and appraisal costs to minimum.
   

Table - Examples of Quality Costs Associated with Software Products

Prevention	Appraisal
Statistical Process Control Capability/feasibility studies Improvement programmes Preventive actions Consultancies Training Procedures/Work instructions Communications Calibration systems	Inspection Design review Code inspection Audit (internal & external) Testing Glass box testing Black box testing Training testers Beta testing Test equipment & automation Usability testing Pre-release out-of-box testing by customer service staff
Internal Failure	External Failure
Rectification Scrap Rework Concessionary work Investigations Corrective Actions	Rectifying returned products Replacements Warranty claims Complaints Site repairs Lost custom/reputation Legal ramifications

The minimum total cost,for example is shown below as being achieved at 98% perfection. This percentage is also known as best practice. That is, the cost of achieving an improvement outweighs the benefits of that improvement.

In my previous post, similar cost curve created doubts to few as the X-axis was labelled "Defects" there. In fact it is the Degree of perfection achieved towards the individual curves like Appraisal, Prevention etc. In few instances, this axis is taken with increasing Quality of Design.

Sources referred:
http://www.isixsigma.com/dictionary/glossary
http://www.asq.org/topics/coq.html
http://www.educesoft.com/quality/costofquality.htm
http://www.hq.nasa.gov/office/hqlibrary/ppm/ppm35.htm