Cost of Quality

Quality costing is a Powerful technique to monitor the 'real' effect to the business of failing to achieve requirements. When a requirement is not achieved ' right first time' the full cost impact is attributed to the non conformance.

Non conformances are measured in Vs not number, percentage etc. as this enables effective prioritization and justification for corrective action.

Our experience has shown that rework involving over 20 products could be focused to 2 because these carded almost 80% of the cost of rework.

Our experience has also demonstrated that there is no Economic Quality Level and that ft is always cheaper to 'get it right first time'. Two measures of Cost of Quality are monitored:

1. Cost of Conformance (COC)

This is the money invested in prevention to ensure that requirements are met first time.

2. Cost of Non Conformance (CONC)

This is the cost of failing to 'get it right first time'.


Experience has shown that a typical manufacturing organization wastes between 20 25% of its total revenue, and that a service organization can waste up to 40%. Careful corrective action, investing in COC, can lead to dramatic reductions.

One myth is that Quality Costing applies only to the product, i.e. the item which the customer sees. This is only part of the story. Quality Costing applies to every activity within the organization. Every activity that is not performed right first time, creates quality costs in being corrected.

For example, poorly organized meetings, manager's progressing other people and unanswered telephone calls.

These costs multiply the effect in CONC where several processes link together, so that a mistake in an early process will require much larger costs in order to rectify later. For example, a clerical mistake on a customer quotation at receipt to the company, could be rectified quite cheaply if picked up immediately. However if the mistake is processed, this will involve more departments, people and systems in work that will all need re doing. The costs escalate quite dramatically.

The above are examples of the actual costs. In addition, there are lost opportunity costs. For example, how much business was lost due to errors, the slow responses, the poor image presented? These costs are difficult to quantify but are known to exist.

An acceptable approach is to be aware of them, but not to try and evaluate them. Rather, to spend the effort on removing every visible mistake, every non conformance. If these are removed, the lost opportunity is automatically reduced. The approach is to focus on the visible, the tangible.


1 . Data Collection

This Identifies the key cost measures for the business. This will be achieved by educating a team and developing a pilot approach. Once agreed as acceptable, the approach will be repeated for the entire company. At the end of this phase the Cost of Quality will have been determined.

This first cost model will probably not identify all of the costs. This is because the understanding and identification of conformances and non conformances requires education and realization from the entire workforce. This will occur in due course via awareness cascading and support from management. No one readily admits to non-conformances until they feel the culture is correct!

2. Analysis

Modem quality tools and techniques are used with the Top Team to identify root causes from the Cost of Quality analysis. Root causes will be identified enabling Problem Solving Teams to be set up to follow through the Improvement Process.

3. Problem Solving Teams

Prioritized Teams are set up, trained and supported in reducing identified problems.


DEFINITION - Cost of Non Conformance (CONC)

The cost incurred by failing to achieve an activity right first time on time every time


DEFINITION - Cost of Conformance (COC)

The cost of investing to ensure activities are achieved right first time and problems prevented



Cost of non conformance


Creating Proposal

COO within Process

COQ Downstream