2. Cost of Good Quality (COGQ) vs. Cost of Poor Quality (COPQ)

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1. What is Cost of Quality ?

The cost of quality is a method by which an organization calculates how much it will cost to deliver a product or service that meets the quality expectation standard set in the project plan. Companies can use this method to determine how delivering quality will affect their bottom line.

Project managers use the cost of quality to avoid overspending, which has a negative impact on stakeholders, team members, and customers or end users.

The project manager’s decisions throughout the project are guided by the project manager’s ability to calculate the cost of quality. It illustrates how to strike a balance between investing in quality during the project and paying for it later on if problems are not detected or prevented during product production.

2. Cost of Good Quality (COGQ) vs. Cost of Poor Quality (COPQ)

Cost of quality is broken up into two categories, the cost of good quality and the cost of poor quality.

Cost of Good Quality (COGQ) consists of the cost of quality conformance and the ability of a product or service to meet design qualifications. This includes any associated costs associated with appraisal and prevention.
Cost of Poor Quality (COPQ) is the costs associated with producing a poor-quality product or service for stakeholders, customers or end-users. It includes all of the company’s internal and external nonconformance costs. When a product or service does not meet the quality requirements, a company will incur these additional costs.

3. Four Types of Cost of Quality

The four main costs of quality add up to make up the total cost of quality.

CoQ = Appraisal + Prevention + Internal Failure + External Failure

The cost of good quality, as noted above, is made up of appraisal costs and prevention costs, while the cost of poor quality is made up of internal failure costs and external failure costs.

1. Appraisal Costs

Measurement and inspection activities during operations to determine conformance to quality requirements.

2. Prevention Costs

Activities planned and designed prior to operations to ensure high quality and avoid low-quality products or services

3. Internal Failure Costs

Expenses incurred to remedy defects discovered before the delivery of a product or service.

4. External Failure Costs

Expenses incurred to address customer-discovered flaws in the product or service after delivery.

4. How to Measure Cost of Quality

For example, Prevention & Appraisal costs ensure that a task was conducted right the first time, and Failure Costs, both internal & external, occur when a task is not performed right the first time.

This is super important – so the X-Axis is the Quality Level which moves from 0% conformance on the left to 100% conformance on the right.

As you move from 0% conformance to 100% conformance the Prevention & Appraisal Costs increase linearly. Similarly, the Failure Costs (Internal + External) begin decreasing sharply.

Then, the Total CoQ (Cost of Quality), which is a sum of these two other curves also decreases sharply.

One key conclusion is that the Total CoQ is the lowest, when conformance is 100%. At this point, the Total CoQ simply equals the Cost of Prevention & Appraisal.

5. Conclusion

The cost of quality is an important concept in project management. It is important to consider all aspects of quality, from the design and planning stages to the execution and delivery of the project.

The cost of quality should be identified and taken into account during the planning and execution phases of the project to ensure that the project is completed on time and within budget.