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Internal Use Only

Cost of Quality (COQ) & Cost of Poor Quality (COPQ)

Cost of Quality (COQ) It is also called Quality expenditure &
is a part of product cost. The Enterprise pays this cost to ensure &
improve the quality & all the loss of failing to meet committed
quality standard. It should consist of prevention cost, identification
cost, internal loss, external loss.
Cost of Poor Quality (COPQ) - Cost of Poor Quality is a part of
Cost of Quality, which is the cost that will be vanished if our product
and process is perfect. Actually, its the cost from that we did not do
the job right at the first time. The COPQ includes Internal Failure
Costs & External Failure Costs.

Joshep Juran first discussed Cost of Quality analysis in 1951 in the first edition of Quality Control handbook. Armand
Feigenbaum, IBM quality expert indentified the four cost categories in 1956 in Total Quality Control in the Harvard
Business Review, Vol. 34, No. 6.

How COQ affects different departments of an Organization or a project:

1. Logistic
High clearance fee & demurrage charge due to freight delay
Redo & rework expenditure due to quality problem in suppliers material
2. Product R&D
Customer penalty & breakdown of network caused by defective product
Retesting the product
Rebuilding or repairing a machine
3. Others - Loss induced by Not-Sales-Related quality problem

Preventive Cost:
Prevention costs are incurred to prevent or avoid quality problems. These costs are associated with the design,
implementation, and maintenance of the quality management system. They are planned and incurred before actual
Appraisal Cost:
Appraisal costs are associated with measuring and monitoring activities related to quality. These costs are associated
with the suppliers and customers evaluation of purchased materials, processes, products, and services to ensure that
they conform to specifications.
Internal failure costs:
Internal failure costs are incurred to remedy defects discovered before the product or service is delivered to the customer.
These costs occur when the results of work fail to reach design quality standards and are detected before they are
transferred to the customer.
External failure costs:
External failure costs are incurred to remedy defects discovered by customers. These costs occur when products or
services that fail to reach design quality standards are not detected until after transfer to the customer.

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Items of COQ:

Cost type COQ sub-item Data source

Quality working expend Information consultancy, and quality certification etc.
Quality training expend Employee training & skill certificate.
Prevention Quality improvement expend Improvement/maintenance program operation
Costs Quality award expend Team reward etc.
Salary & welfare Depends on the Dept. attribute.
Test equipment expend Fixed asset of Production & Quality dept., as well as equipment
Appraisal gauging fee.
Costs Network Test expend Network test expend
Salary & welfare Depends on the Dept. attribute.
Scrap loss Base on actual data
Internal Failure Rework loss Depends on the Dept. attribute.& maintenance material cost
Cost Line-down loss N/A
Problem analysis expend Base on defective qty.
Supplement shipment Data of supplement shipment
Backup board and backup component Data of backup board and backup component
External Failure Purchased material Data of purchased material
Costs After-sales dept. operation fee Depends on the Dept. attribute.
After-sales service fee After-sales service fee
Returned material loss Data from adverse logistic dept.
Claim expend Penalty & indemnity

Compound of COPQ:

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Identification & categorization of COP:

No No Quality cost
Affect the product


Pay for the

No Pay for Test or No Prevention cost

Yes Appraisal Costs


Defectives delivered to No
Internal Failure cost

External Failure Costs

Traditional Model of COQ:

X-Axis is the Quality Level which moves from 0% conformance on the left to 100% conformance on the right.
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 that Juran is communicating with this graph 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.

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Iceberg model & COPQ:

While analysing COPQ through Iceberg model, it is
observed that COPQ rages 15-25% of total project cost,
which underlies the water level surface that is termed as
Hidden costs or Indirect cost.
Direct Cost: It can be defined as costs which
can be accurately traced to a cost object with little effort.
Direct costs typically benefit a single cost object.
Indirect or Hidden cost: Costs which
cannot be accurately attributed or is impracticable to trace
to specific cost objects are called indirect or hidden costs.
These typically benefit multiple cost objects
As a company gains a broader definition of poor quality,
the hidden portion of the iceberg becomes apparent

Why need to focus on COPQ?

Quality cost = Quality input + Quality loss (COPQ)

Profit = increase income + reduce loss

COQ Limitations:

1. The big one being that COQ Data by itself

does not lead to improvement. COQ program it is
merely a scoreboard for current performance. It is still
needed to analyse problems to determine what the root
cause is and then take action to fix those problem.
2. Another limitation of the Quality Cost system
is its inability to quantify the Hidden Quality Costs that
every company experiences. Example, for an
engineering department, where those folks are
involved in new product development (prevention
costs), CAPAs (internal failure costs), and are
associated with the internal auditing program
(appraisal cost).
3. How do accurately account for the time and
effort spent in these different categories that all add up to what has become known as the Hidden Factory.

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