Cost of Quality (COQ) - Section B

Definition: 

Cost of Quality (COQ) is the sum of the costs incurred by a company in preventing poor

quality, the costs incurred to ensure and evaluate that the quality requirements are being

met, and any other costs incurred as a result of poor quality being produced. Poor quality

is defined as non-value added activities, waste, errors or failure to meet customer needs

and requirements. These COQ costs can be broken down into the three categories of

prevention, appraisal and failure costs. The COQ model is often referred to as the PAF

model after these three categories.

Prevention Cost:

The Planned costs incurred by an organization to ensure that errors are not made at any of the various stages during the delivery process of that product or service to customer. The delivery process many include design, development, production and shipping.

Examples: Education and training, continuous improvement efforts, quality administration staff, process control, market research, field testing and preventive maintenance.

Appraisal cost:

The costs of verifying, checking or evaluating a product or service at the various stages during the delivery process of that product or service to the customer.

Examples: Incoming inspection cost, internal product audit, inspection activities, inventory counts, Quality administration salaries, supplier evaluation and audit reports.

Failure cost:

The costs incurred by a company because the product or service did not meet the requirements and the product had to be fixed or replaced or the service had to be repeated. These failure costs can be further subdivided into two groups.

                Internal failure cost:

                Internal failure include all the costs resulting from the failures that are found before the product              or service reaches the customer.

                Examples: Scrap, rework, extra inventory, repair stations, re-design, salvage, corrective action

                reports and overtime due to nonconforming product or service.

                External Failure:

                External failures are all the costs incurred by the company resulting when the customer finds the             failure. These external failure costs do not include any of the customer’s personal costs.

                Examples: warranty, customer complaint administration, replacement product, recalls, shipping                               costs, analysis of warranty data, customer follow-up and field service departments.