Cost of Quality (COQ)

A Cost of Quality (COQ) constructs a chart displaying prevention, appraisal, and failure costs over time in order to demonstrate the cost of poor quality. The Cost of Quality can be categorized into two divisions: The Cost of Poor Quality (COPQ), and The Cost of Good Quality (COGQ). The cost of poor quality looks over the entire internal as well as the external costs which is the outcome of the product imperfection. Alternatively, the cost of good quality is the prevention costs that are used in prevention and assessment such as, quality planning, error proofing, quality education, Six Sigma training etc.

Cost of Quality can be defined as the cost which is allied with the quality of a product. It is the sum total of costs which is incurred while maintaining quality up to standard levels plus the cost of failure to maintain that level. Cost of Quality will not incur if the quality is free from faults. Six sigma offers solution to this problem and helps the companies to reduce their Cost of Quality to a level of one to two percent only.
 
The computation system of quality cost has now become a trend of every modern organization. This accounting and computing are playing a key role in the quality improvement of organizations. In six sigma management plan, quality cost make out the way to get greatest return on the investment made by companies. The Cost of Quality can be saved if the quality of a product is perfect. Costs which arise for:

  • Investment made while preventing non- conformances to requirements,
  • Assessing a service or product for conformance to the necessary requirements, and
  • Failing to meet the requirements. 

Under the heading “Cost of Quality”, there are two divisions: Cost of Poor Quality (COPQ), and Cost of Good Quality (COGQ). Cost of Poor Quality is again sub- divided into:

  • Internal Failure Costs, and 
  • External Failure Costs 

Cost of Good Quality has the sub- division:

  • Appraisal Costs, and 
  • Prevention Costs 

Internal Failure Costs: It is caused by services or products not meeting the requirements of the consumers or users and is found before the time of the release of services and products to the external customers. They would probably have dissatisfied the customer because of the dearth that is caused in cooperation by erroneousness products and inaccuracy in processes. These include the cost for:

  • Rework 
  • Stoppage 
  • Re-designing 
  • Shortages 
  • Failure analysis 
  • Re-testing 
  • Reduction 
  • Downtime 
  • Lack of suppleness and adaptability 

External Failure Costs: When customers are dissatisfied due to deficiency found at post delivery period of products can incur external failure costs. Examples for these costs include:

  • Grievances 
  • Patching up goods and redo services 
  • Warranties 
  • Customers’ bad will 
  • Sales reductions causes heavy loss 
  • Costs of environment. 

Appraisal Costs: The necessity to control services as well as the products to make certain a high excellence level in all the stages causes the emergence of prevention cost. These include the costs for:

  • Checking and testing services and goods that are purchased
  • Final inspection and in process 
  • Field testing 
  • Product, service audits and process

Prevention Costs: Costs that are designed to prevent poor quality from arising in products or services are Prevention Costs. These are: 

  • Quality scheduling
  • Error proofing 
  • Capability assessments 
  • Quality development projects 
  • Quality education and training 

Quality Processes: Six sigma is the perfect solution for reducing the cost of quality to a minimal level. The way is made by building the quality as part of the processes. Six sigma assures to do work perfectly right from the beginning. A company can gain maximum benefit from six sigma processes by spending less money in the faulty product or services. If there is a smooth functioning of management then a company will produce zero defects. If processes are improved, the appraisal and prevention costs will be concentrated.
 
Poor quality causes higher costs of products or services and at the same time customer dissatisfaction. The sales running on loss may become critical if not taken carefully and on time. Such situations can be controlled by thorough measurement of quality.
 
Quality cost data if collected timely can help support performance improvement. To make the process more effective, the cost of quality has to be mutual with other quality information systems to guarantee that such critical condition can be uprooted correctly. To achieve less cost of quality, the organization should move to Six Sigma Quality Level.

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