The quality movement has used the term Cost of Quality (COQ) for decades. However, in practice, few companies know how to employ methods to implement and measure quality (or non-quality) costs in their business.

Are the efforts made to ensure quality worth it? Can you answer this question with absolute certainty?

At an operational level, quality management techniques should identify waste, solve problems and optimize processes. The focus is always on prevention, but if a problem should manifest itself, reactive resolution is also part of the improvement process.

However, it is at the strategic level that the role of quality is lost. Little is said about quality in relation to the strategic and even financial objectives of organizations. As a result, organizations are unable to quantify the benefits of quality in financial terms. In short, when it comes to quality, there is a gap between operational and strategic levels.

The costs of quality

Generally speaking, the costs of a process or service can be divided into two categories:

Error-free costs: costs that are not related to planning, controlling, correcting, and improving quality. These are direct costs, considering that everything runs well in the process.

Quality costs: costs related to problems encountered. They may not occur if all processes are error-free.

Quality costs can be sub-divided into another two groups:

Compliance costs: these are costs related to the preparation and assessment of compliance with requirements.

Non-compliance costs: costs related to internal or external failures (internal failures are detected before reaching the end customer, and external ones are detected by customers).

A simplified definition of COQ is that costs of quality are the costs for avoiding, identifying and resolving detected defects and errors.

Identifying and classifying costs within these categories (prevention, evaluation, internal failure and external failure) and comparing them with investments made is an interesting method for demonstrating results. Conceptually, the four categories should always have their amounts reduced, but the cost of prevention needs to be increased so that the costs of non-compliance are reduced in the future. This makes the COQ method more than simply a costing scheme; it becomes a tool to base financial investments on.

This text is based on a very interesting article by Gary Cokings, an expert on the matter. In the full article, you will find examples and illustrations to help you better understand this topic.

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Tobias Schroeder

Author

Tobias Schroeder

MBA in Strategic Management from UFPR. Business and market analyst at SoftExpert, a software provider for enterprise-wide business processes automation, improvement, compliance management and corporate governance.

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