Cost of Quality (COQ): A Quick Guide

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Anyone who has delivered a product or service understands the triple constraint. Time, cost and scope have to be controlled to successfully complete a project. However, there’s a fourth constraint that’s less discussed: quality. Cost of quality (COQ) helps you avoid neglecting quality and boost customer satisfaction.

How COQ does this, especially in project management, is what we’ll define. But we’ll also discuss the cost of good quality vs. the cost of poor quality and show you how to measure COQ. Whether you’re manufacturing products or delivering a service, project management software can help you with the cost of quality.

What Is Cost of Quality (COQ)?

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. This is a means by which companies can figure out how delivering quality will impact their bottom line.

This concept has been around for a long time. The book Quality Control Handbook, published in 1951 and written by quality expert Joseph Juran, defined cost of quality as having both tangible and intangible costs. It’s also part of Lean Six Sigma, a philosophy of improvement built on the prevention of defects over defect detection.

COQ takes into account not just the manufacturing of the product or the cost to deliver a service, but the financial impact of having to rework items or scrap a project will cost. It’s also not just forecasting the impact of poor quality but the expense of audits and maintenance that comes with delivering a quality product or service.

A benefit of cost of quality is that it gives manufacturers or service providers a chance to analyze their processes and in so doing improve quality operations. This is done in two ways as illustrated above: controlling good quality against the failure of control, which leads to bad quality.

To maintain quality in your project, you need to establish procedures and guidelines. Project management software gives you the tools to implement these procedures and track them to ensure quality.

ProjectManager is online project management software that allows you to plan, manage and track quality control in real time. Use our robust Gantt charts to create product roadmaps to control quality standards at each step of the development process. Once you set the schedule as your baseline, you’ll be able to monitor the planned effort against your actual effort to stay on track. Get started with ProjectManager today for free.

Cost of Quality in Project Management

Making sure you deliver quality products or services at the cost you’ve determined in your budget is fundamental to project management. The cost of quality is one method that project managers use to avoid overspending, which negatively impacts stakeholders, team members and customers or end-users.

Naturally, not delivering quality in any project is an expensive problem. It’ll leave stakeholders unhappy, but also those who will be using the product or service. Project managers must review the cost of quality in their projects to optimize the amount of investment there needs to be.

This doesn’t mean using high-grade materials but avoiding costs related to quality issues. Some of these costs can be the price of materials, which could lead to a better working and longer-lasting product. But COQ is part of every phase of the project’s life cycle.

Being able to calculate the cost of quality informs the project manager’s decisions throughout the project. It speaks to the balance of investing in quality during the project with the future costs of not preventing or catching issues during product production.

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. 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.

COPQ is the costs associated with producing a poor-quality product or service for stakeholders, customers or end-users. It involves all nonconformance costs, both internal and external to the company. These are incremental costs that a business will incur when it fails to meet the quality requirements of the product or service.

The difference between these two terms is that they’re opposites that work together in terms of helping one figure out the dollar amount of creating a quality product or service. They do this by looking at the cost of producing quality and comparing that to the cost of paying for delivering a product or service of poor quality.

How to Measure Cost of Quality

All of this naturally leads to the question of how to measure the cost of quality. But to do this, we need to dig further into the cost of quality categories. We’ve explored the next level, which is the cost of good quality and the cost of poor quality, but both of those categories can be further boiled down.

There are four main types of quality costs. 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. Let’s first define these terms.

Appraisal Costs

The appraisal costs are related to checking the quality of the product or service that you’re delivering. Some examples of appraisal costs include the inspection of the product, testing and other types of review to make sure that quality requirements are being met. This can also be associated with the maintenance of any test equipment, supervision of the inspection staff and inventory that has been damaged or destroyed during the testing process.

Related: Free Product Development Template

Prevention Costs

Prevention costs are used to prevent any defects from occurring in the production of the product. There are many examples of this type of cost, from training your team to avoid errors and working more effectively to improve work processes. There are also design costs that can fall into this category, as well as quality audits, process planning and evaluating the quality of your suppliers.

Internal Failure Costs

Internal failure costs are those result from having to repair or rework a product or service because it didn’t achieve the expected quality standard. Some examples of this include any costs related to repairs made in production, having to buy replacement pieces and the cost of reworking the defective product. There can also be an analysis failure or even having to scrap the product development altogether.

External Failure Costs

External failure costs are associated with having to replace or refund a product that’s defective or has defective parts. Some examples of this include the costs related to warranties, liability costs and the costs associated with lost customers due to a poor product or service. In the worst-case scenario, this could also be legal costs from customer claims.

Now that we’ve defined those terms, let’s look at how to measure the cost of quality. Remember, these calculations differ from one organization to the next. Some businesses calculate the total warranty as a percentage of sales, for example. But that’s more for external failure costs.

Using the categories we’ve described above, first, calculate the cost of good quality by adding the preventative costs and appraisal costs (COGO = PC + AC). Then calculate the cost of poor quality by adding the internal failure costs with the external failure costs (COPQ = IFC + EFC). Finally, add those two totals for the cost of quality (COQ = COGQ + COPQ).

ProjectManager Helps With Cost of Quality (COQ)

Once you’ve made these calculations, you’re in a better position to plan your project with the necessary resources. But you still need a quality assurance plan to make sure you’re meeting those quality expectations. Project management software helps you plan and meet your quality standards. ProjectManager is online project management software that gives you the tools you need to plan, manage and track project quality in real time.

Monitor Quality in Real Time

In order to meet quality expectations, you need to monitor your processes and track metrics in order to catch issues and address them quickly before they negatively impact the project. Our real-time dashboard automatically collects live project data and displays this data in easy-to-read charts and graphs that show everything from time to cost, the workload to project variance. Unlike lightweight tools, there’s no time-consuming configuration necessary. It’s ready when you are.

Manage Quality With Kanban Boards

If you do notice a problem, you can identify and mitigate it with our kanban boards. Quality issues can be captured on kanban cards, which include descriptions, priority and tags. The team can even comment and attach files to the cards. The visual workflow of the kanban board allows managers transparency as the card moves through columns. Teams can manage their backlog and collaborate on sprints.

Another aspect of quality assurance is stakeholders. They have a vested interest in the project and want to know how things are going. You can keep them updated with our customized reports. Whether it’s a status report, portfolio report or a report on cost or time, you can show them relevant data through reports in multiple formats. Keeping stakeholders happy is a type of quality you can never get enough of.

ProjectManager is award-winning software that empowers teams to work more efficiently. Besides being able to maintain the quality of your deliverables, our task management, risk management and resource management tools keep you productive without overspending or missing deadlines. Join teams at Avis, Nestle and Siemens who use our software. Get started with ProjectManager today for free.