The cost of poor quality often goes unnoticed or is disguised in higher warranty costs and loss of brand equity

1. Prepared By:
CEng.Theophilus Ato Fletcher (MSc Project, BSc Mech. Eng.,& HND Mech.Eng.,)
 Dip. Workplace Safety
 Dip. Quality Management
 Dip. Operation Management
 ISO 9001:2015 Quality Management System
 ISO 14001:2015 Environmental Management System

2. Implementation and benefits
of
COST OF QUALITY
CEng.Theophilus Ato Fletcher
(MSc Project, BSc Mech. Eng.,& HND Mech.Eng.,)

3. Outline
• Introduction
• Cost of quality
• What is cost of quality
• Explanation of cost of quality
• Goals
• Components of cost of quality
• Types and examples of cost of quality
• Implementation of cost of quality
• Benefits of cost of quality
• Four ways of perceiving cost of quality

4. Introduction
The economic environment is becoming increasingly more competitive.
Many companies are promoting quality as the core customer value and consider
it to be a key success factor for achieving competitiveness.
In order to remain competitive, most companies worldwide are continuously
looking for ways to reduce cost and improve efficiency.
The cost of poor quality often goes unnoticed or is disguised in higher warranty
costs and loss of brand equity.
There are various alternatives available to the customer for almost every
product on the market.
The better-performing companies set themselves apart by listening to the voice
of the customer and supplying products according to the customers’
requirements while maintaining a high level of quality and dependability.

5. Cost of Quality
• Is a technique defining and measuring where
and what amount of a companies’ resources
are being used for prevention activities and
maintaining product quality as opposed to the
costs resulting from internal and external
failures.
• The Cost of Quality can be portrayed by the
sum of two factors, the Cost of Good Quality
(COGQ) and the Cost of Poor Quality (COPQ).

6. What is cost of quality
Cost of
Quality
is a method for calculating the costs companies incur ensuring that
products meet quality standards, as well as the costs of producing
goods that fail to meet quality standards.
the process that measures and determine where and how the
resources of organizations are utilized for in maintenance of
quality and prevention of delivering poor outputs.
a methodology used to define and measure where and what
amount of an organization’s resources are being used for
prevention activities and maintaining product quality as
opposed to the costs resulting from internal and external
failures
a methodology that allows an organization to determine the extent
to which its resources are used for activities that prevent poor
quality, that appraise the quality of the organization’s products or
services, and that result from internal and external failures

7. Explanation of cost of quality
• It talks about the costs that the organization bears while
trying to achieve and maintain the quality output.
• The companies determine the cost of quality to derive
competitive advantage in the industry.
• By investing a fixed amount towards this cost, the business
ensures that the failures are reduced, and defects are
eliminated.
• It ensures that the business maintains a positive bottom
line.
• If the company does not incorporate this cost, then the
business can incur high failure costs in the form of product
returns and costs of warranty, which can, in turn, dampen
the bottom line altogether.

8. Goals
It helps the organization to chalk out wrong and
poor-quality output.
It helps in problem-solving wherein it performs
costs and benefits analysis on different
initiatives of quality and process improvements.
The model or cost of quality helps in a single-
point evaluation of quality performance.
It further evaluates of costs of failures and
appraises them accordingly

9. Components - cost of quality
Components
Cost of
Quality
Prevention Cost
Appraisal Cost
Internal Cost
External Cost
Cost of Good
Quality
Cost of Good
Quality
Cost of Poor
Quality
Cost of Poor
Quality

10. Cost of Good Quality
• PREVENTION COST Costs associated with training, preventive
maintenance, quality planning, housekeeping and
other prevention activities
Signify resources used to prevent failures and poor
quality .
Costs associated with activities specifically designed to
prevent poor quality in products.
Costs incurred to prevent or avoid quality problems.
They are planned and incurred before actual operation
Costs incurred from activities intended to keep failures
to a minimum

11. Prevention cost, examples
1 Establishing Product
Specifications
Establishment of specifications for incoming
materials, processes, finished products, and services
2 Quality Planning Creation of plans for quality, reliability, operations,
production, and inspection.
3 Quality Assurance Creation and maintenance of the quality system.
4 Lessons Learned Creation of lessons learned register and action
tracker
5 Development of a Quality
Management System (QMS
6 Risk Management
7 Proper Employee Training Conducting formal training programs to improve
quality
8 Supplier Qualification

12. Cost of Good Quality
• APPRAISAL COST costs incurred by reviewing and auditing products and
production processes to ensure their conformance to
quality standards
costs that a business incurs when it works towards the
identification of defective items. It is done before any
product has to be shipped to the end consumer. The
quality checks professional generally inspect finished
goods, in the process inventory and raw materials.
costs incurred to maintain acceptable product quality
levels
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. e

13. Appraisal cost, examples
1 Inspections of received
goods
Verification: Checking of incoming material, process
setup, and products against agreed specifications
2 Process Controls Process control techniques in order to reduce
variations and improve quality
3 Final Inspection
4 Calibration
5 Equipment monitoring
6 Quality Audits Confirmation that the quality system is functioning
correctly
7 Process monitoring
8 Supplier performance
management
Assessment and approval of suppliers of products and
services

14. Cost of Good Quality
• INTERNAL COST the cost that the business or corporate entity has to bear
once the defective items are identified before proceeding
with the shipment. These costs signify the direct material,
manufacturing overhead, and direct labor consumed by
each defective item.
costs associated with defects found before the customer
receives the product or service.
costs are incurred to remedy defects discovered before
the product or service is delivered to the customer.
costs are costs associated with defects found before the
customer receives the product or service
costs associated with defects found before the product or
service reaches the customer.
costs incurred when a product fails to conform to a
quality specification before shipment to a customer

15. Internal Failure cost, examples
1 Waste Performance of unnecessary work or holding of stock
as a result of errors, poor organization, or
communication, poorly designed processes
2 Re-work Costs of reprocessing and repeating the tests
Correction of defective material or errors
3 Machinery breakdowns
/downtime
due to inappropriate maintenance and trash due to
inadequately designed processes
4 Failure analysis costs Activity required to establish the causes of internal
product or service failure
5 scrap Defective product or material that cannot be
repaired, used, or sold
6 Process delay
7 Injuries to employees
8 Retest/Validation

16. Cost of Good Quality
• EXTERNAL COST which are costs related to the low quality of a product
detected by the customer after it was shipped.
costs that the business has to bear on account of
defective items that are shipped to the customers.
These costs are often regarded as expensive as they
would cause the business to incur high warranty and
return costs along with already incurred manufacturing
overheads..
costs incurred when a product fails to conform to a
quality specification after shipment to a customer
costs occur when products or services that fail to
reach design quality standards are not detected until
after transfer to the customer.

17. External Failure cost, examples
1 Repairs and service cost Of both returned products and those in the field
2 Warranty claims Failed products that are replaced or services that are
re-performed under a guarantee
3 Customer Complaints All work and costs associated with handling and
servicing customers’ complaints
4 Product Returns Handling and investigation of rejected or recalled
products, including transport costs
5 Incorrect Sales Orders
6 Shipping Damage due to
Inadequate Packaging
Damages due to poor packaging and penalties for
delays in deliveries
7 Lower quality scores
8

18. Type of a cost at hand graph

19. Implementation Cost of Good Quality
Implementation Stage Top Management commitment(customer requirement)
Establishing an Implementation Team
Internal Quality Audit
Providing Training
Control of Documents
Make recommendation and offer direction.
Reviewing by Management
Implement an effective cost of quality methodology
Management walk about
Departmental Engagement(Assess the current systems
process)

20. Benefits of using Cost of Quality
• Enable an organization to assess the number of resources
being used for the Cost of Good Quality and Cost of Poor
Quality.
• Determine where to allocate resources to improve product
quality and the outcome.
• Improve product quality while reducing cost. Cost of
Quality gives detailed information including how to
evaluate the effectiveness of quality systems, identify
problem areas, and leverage opportunities accurately.
• .

21. Benefits
• The cost of quality helps the business in deriving
competitive edge with respect to its peers
working in the industry.
• It allows the organization to plan for costs that
the business has to incur in maintaining quality
costs and helps the organization to make
provisions over them, which in turn helps the
organization to maintain a favorable bottom line.

22. Benefits
• Implementing the Cost of Quality method will
allow you to find a measured balance
between the price of your product and its
quality.
• It provides you with the necessary insight to
identify problem areas regarding the quality of
your products and the costs related to it.

23. Benefits
• As a consequence, you can analyze the root
causes of product non-conformance and
determine where resources could be better
allocated to in order to improve your
production processes as well as product
quality.
• This way, you can minimize failure costs and
appraisal costs by investing more in
prevention.

24. Benefits
• By minimizing external failures, you will keep
your customers much happier, lowering the
rate of returns and repairs, and increasing
revenues.
• In the end, measuring your Cost of Quality can
have a major impact on the bottom line of
your business.

25. Four Ways of Perceiving Cost of Quality
Reduce Quality Costs and Boost Return on Investment.
Your business is transformed in many ways to reduce costs across
every level of your manufacturing operations if the quality is
embedded within every operation.
With a quality manufacturing approach, the cost of quality initiatives
become a powerful tool to improve return on investment.

26. Perceiving Cost of Quality
Reduce the cost of waste, scrap, and rework
Relying solely on a final inspection for quality control can be too late.
If a process differs from specification anywhere in the production
line, that finished product goes directly to the waste bin,
accumulating the incalculable costs in rework and materials.
You must monitor product and process quality in real-time at every
critical operation so that plant operators can adjust and eliminate
variations before they cause costly waste

27. Perceiving Cost of Quality
Turn customer complaints into customer satisfaction
When you can identify and rectify product and process variations
early before your final inspection and reach to customers or if
customers are having issues or concerns, then you should provide
immediate access to reporting for responding to customer queries
quickly.
This can build a stronger bond, more repeat orders, and better
customer relationships.

28. Perceiving Cost of Quality
Build brand equity and gain a competitive advantage
Extensive data collection and quality control analysis capabilities,
automated alerts, and aggregated access to historical data
enable unparalleled product consistency to meet your
customers’ expectations and elevate your brand as the premium
producer in your industry.

29. THANK YOU
Available for further explanation
0244 40 18 69
Wish both leaders all the best.