Cost of Poor Quality (CoPQ)
The cost of poor quality (CoPQ) is defined as the costs or expenses associated with defects created by a process. Quality actually has a broader cost – avoiding poor quality comes at an expense as well.
CoPQ is usually broken into two major categories: costs associated with external failures and costs associated with internal failures.
External Failures
External failures usually occur after products or services have been delivered, which means they are directly associated with customer dissatisfaction. External failures might include revenue losses associated with a reduction in sales because of the quality of products, services, systems, or information. Other types of external losses include expenses associated with repairs, returns, or rework associated with a customer complaint; expenses associated with warranties; or loss of revenue or sales because of customer ill will or bad word-of-mouth.
Internal Failures
Internal failures occur when products, services, or processes don’t conform to the requirements set by the company, and the product or service is provided to the customer in an unsatisfactory fashion. Internal failures are usually handled by scrapping the work, redoing the work, or repairing the work.
Calculating the Cost of Poor Quality
The equation for CoPQ is:
CoPQ = External Failure Costs + Internal Failure Costs
While the equation seems simple, identifying all of the costs associated with poor quality can be difficult. Most experts use the metaphor of an iceberg to explain the hidden costs of poor quality. On the surface, you see the very small tip of the iceberg–the obvious costs of poor quality. These might be things such as scrap, reprocessing, warranty claims, customer returns, and extra shipping
Beneath the surface, however, an iceberg is always much bigger. The same is usually true of the cost of poor quality, and hidden costs might include:
- Loss of customer loyalty
- Loss of morale
- Loss of employees if morale remains low for extended periods
- Conflicts associated with scheduling or rescheduling
- Higher risks of compliance issues, including fines
- Higher administrative costs
Cost of Quality (CoQ)
Cost of Quality (CoQ) covers the expenses associated with maintaining good quality throughout an organization or process. CoQ includes Prevention Costs and Appraisal Costs. They are costs of conformity – they are the expenses related to ensuring outputs conform to critical to quality requirements.
Prevention Costs
The costs of prevention are the expenses that are related to any activity meant to stop an error or defect from occurring – Error-proofing.
Other types of prevention costs include expenses related to quality planning, reviews, or education and training focused on quality.
Appraisal Costs
Appraisal costs are those associated with any activity meant to ensure high levels of quality across a process or organization.
Appraisal costs can be related to quality audits on products or services, the cost of calibration and measurement of equipment, and the cost of field tests.