Cost of Quality Metrics

DEFINITION
Cost of Quality (COQ) is a measure that quantifies the cost of control/conformance and the cost of failure of control/non-conformance. In other words, it sums up the costs related to prevention and detection of defects and the costs due to occurrences of defects.

• Definition by ISTQB: cost of quality: The total costs incurred on quality activities and issues and often split into prevention costs, appraisal costs, internal failure costs and external failure costs.
• Definition by QAI: Money spent beyond expected production costs (labor, materials, equipment) to ensure that the product the customer receives is a quality (defect free) product. The Cost of Quality includes prevention, appraisal, and correction or repair costs.

EXPLANATION

• Cost of Control (Also known as Cost of Conformance)
  • Prevention Cost
    • The cost arises from efforts to prevent defects.
    • Example: Quality Assurance costs
  • Appraisal Cost
    • The cost arises from efforts to detect defects.
    • Example: Quality Control costs
• Cost of Failure of Control (Also known as Cost of Non-Conformance)
  • Internal Failure Cost
    • The cost arises from defects identified internally and efforts to correct them.
    • Example: Cost of Rework (Fixing of internal defects and re-testing)
  • External Failure Cost
    • The cost arises from defects identified by the client or end-users and efforts to correct them.
    • Example: Cost of Rework (Fixing of external defects and re-testing) and any other costs due to external defects (Product service/liability/recall, etc)

FORMULA / CALCULATION

 Cost of Quality (COQ) = Cost of Control + Cost of Failure of Control

 where

Cost of Control = Prevention Cost + Appraisal Cost

 and

Cost of Failure of Control = Internal Failure Cost + External Failure Cost

NOTES

• In its simplest form, COQ can be calculated in terms of effort (hours/days).
• A better approach will be to calculate COQ in terms of money (converting the effort into money and adding any other tangible costs like test environment setup).
• The best approach will be to calculate COQ as a percentage of total cost. This allows for comparison of COQ across projects or companies.
• To ensure impartiality, it is advised that the Cost of Quality of a project/product be calculated and reported by a person external to the core project/product team (Say, someone from the Accounts Department).
• It is desirable to keep the Cost of Quality as low as possible. However, this requires a fine balancing of costs between Cost of Control and Cost of Failure of Control. In general, a higher Cost of Control results in a lower Cost of Failure of Control. But, the law of diminishing returns holds true here as well.