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Cost of Quality PMP®

Project Managers are involved with managing and controlling quality processes all the time while running their projects. But what about the cost of achieving acceptable quality or the price you pay for not stopping poor quality from reaching a customer? This concept is known as the “cost of quality” and is crucial to understand for the PMP exam and beyond.

Failure to provide quality comes with a high cost and affects project stakeholders, team members, and customers or end-users. As a Project Management Professional (PMP)® credential holder, you must review the overall COQ, including costs of conformance and nonconformance. This will help optimize how much you invest in quality.

Are you ready to dive deeper into the COQ with your expert guides at Project Management Academy? Let’s get started.

What is the cost of quality?

Cost of Quality (COQ) refers to costs incurred while ensuring high-quality deliverables and costs resulting from imperfect deliverables. To put it another way, COQ measures the total costs required to prevent, identify, and deal with the results of defects in deliverables.

Cost of quality common mistakes

In project management, the cost of quality is often confused with the costs of using high-grade materials. Actually, it deals with all the costs related to quality and quality issues. These costs can include but are not limited to, the costs of materials. For example, investing in high-grade materials and ensuring they have no defects can help prevent costs from quality issues later.

Additionally, the COQ is not limited to a specific stage of the project. Quality costs relate to all the activities from project kickoff to customer service – beyond the end of the project itself.

Cost of quality significance

Calculating the cost of quality (COQ) can help inform decisions as you balance investing in quality during the project and dealing with the future costs of failing to prevent or catch errors. These are known as costs of conformance and costs of nonconformance.

The cost of conformance encompasses preventing and appraising defects to ensure quality during the project. The cost of nonconformance covers the costs of external and internal failures to achieve quality. When added together, it equals the total COQ. Here is the cost of quality formula potential PMP credential holders will need to be able to use:

COQ = Cost of Conformance + Cost of Nonconformance (or failure costs)

Understanding the cost of quality can help you calibrate the total amount you spend to secure quality during and after your project. You will need to do this to estimate costs and set a budget properly. Let’s take a closer look at the costs of conformance and nonconformance.

Cost of conformance

Whatever you spend to prevent and appraise defects to meet project quality requirements falls under the costs of conformance.

• Prevention costs are an example of conformance costs that involve quality assurance: preventing poor quality from ever happening. This includes acquiring and maintaining equipment, planning, training your team, and keeping good documentation. It can also include having the right people for the job, doing good research, and more.
• Appraisal costs include any resources used to identify or fix errors in deliverables during the project. This type of conformance cost involves catching or correcting mistakes when they happen since errors can’t always be prevented. These costs may be incurred during inspections, field testing, and other quality control activities.

It’s right in the name: conformance to the established specifications will inevitably cost you some money. However, it will usually cost much less than fixing them after.

As you likely know, project managers emphasize Prevention Over Inspection and Do It Right the First Time (DIRFT) because it’s usually more expensive to fix mistakes than to prevent them from the start. Typically, the earlier you invest in the cost of conformance, the more effective each dollar is, and the fewer costs of nonconformance you will incur.

Cost of nonconformance

Repairing, reworking, refunding, and customer service for faulty deliverables are all costly activities. Specifically, these are costs of nonconformance or the cost of poor quality in project management. When your deliverables do not conform to project quality requirements, fixing their poor quality will cost you.

There are two types of nonconformance costs: internal and external failure costs.

• Internal failure costs occur when you identify defects before they reach the client or end-user. These are similar to appraisal costs in that the project team catches the mistakes. The difference: internal failure costs deal specifically with completed deliverables that fail to reach quality standards. This can include costs such as:
  • Repairing defects in deliverables
  • Reworking deliverables or their components
  • Wasted time and effort
  • Rejecting or scrapping deliverables or their components
• External failure costs refer to the costs of remedying mistakes after your deliverable has already reached the client or end-user. Usually, the client or end-user is the one who identifies the defects – someone external to the project team. Examples of external failure costs include:
  • Refunding customers, providing warranty services, or recalling products
  • Providing customer service and handling complaints
  • Failing to meet legal or regulatory requirements
  • Losing your reputation, profits, or future business

Costs of nonconformance are incurred when your deliverables are not up to standard. The lower the quality, the higher your costs of nonconformance. The higher the quality, the more you can save on costs of nonconformance.

Internal and external failures cost more compared to costs of conformance. External failures are especially tough to predict and tend to have the most significant impact. Understanding these potential costs of quality and doing your best to prevent expensive mistakes is crucial to good project management.

Studying for the PMP Exam?

Cost of quality PMP exam tips

What do you need to know about the cost of quality (COQ) for the PMP exam? Understanding this concept is crucial to scoring well on the PMP exam, as you can expect at least a few questions about the cost of quality. Make sure you are familiar with the components of cost of conformance and cost of nonconformance.

Project Management Institute, A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Sixth Edition, Project Management Institute, Inc., 2017, Page 283.

You should know why investing in prevention is crucial in reducing potentially more expensive costs of nonconformance later on. It’s also helpful to understand why the cost of quality is so important. Calculating the cost of quality helps you optimize your overall project costs.

Remember, while it can be challenging to assess and predict every piece related to the cost of quality (COQ), calculating the COQ itself is relatively simple. All you do is add all the costs of conformance and all the costs of nonconformance. The cost of quality is optimized when the sum of conformance and non-conformance costs is as small as possible.

Realistically, no project deliverable can be perfect. However, Project Managers need to anticipate potential failure costs and prepare to deal with them. Problems detected early on will save time and money. In any case, understanding the cost of quality is hugely beneficial for both the PMP exam and real-world project management.

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Online – Green Mean Time (GMT)

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