Project Quality Management: Cost of Quality Concept Explained

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Project Quality Management can be defined as the process of maintaining and managing quality throughout a project. While in other scenarios, ‘quality’ might be synonymous with perfection, in this case, it is primarily focused on ensuring the consistency of quality throughout the project. With that being said, it is equally important to realise that the meaning of quality will differ on a per-project basis according to the needs and demands of the customers and stakeholders. 

The ultimate goal of project quality management is that the project meets the needs it initially created to meet without exceeding or receding the expectations. This brings us to the Cost of Quality concept. 

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This article will discuss the cost of quality, its type, and how to measure it. So, keep reading to explore all about COQ!

What is the Cost Of Quality?

Cost of Quality (COQ) refers to the combined costs incurred when establishing high-quality deliverables and the costs stemming from quality issues. One of the most common misconceptions about COQ, especially in project quality management, is that it only refers to the cost of implementing high-grade materials. However, that is not at all true. It is a cumulation of costs linked with quality and other related issues. 

One simple example to provide you with a better understanding would be if a steel watch is devoid of any deformities, then its quality of conformance will be just as high as that of a diamond-studded gold watch (free of any defect). Although the former item will not be as expensive or fancy as the latter, both will be defect-free. 

Quality costs are not just limited to the stage of manufacturing. It encompasses all the stages of a product lifecycle, from initial research and development until it reaches the customers. 

Cost of Conformance vs Cost of Non-Conformance

There are two main categories in Cost of Quality: 

• Cost of Conformance
• Cost of Non-Conformance

Both represent the interdependency between investing in quality during project management and the future costs that might be incurred from not doing so. 

Cost Of Conformance

Cost of Conformance refers to the number of resources utilised to meet a project’s quality requirements and targets. The underlying rationale is spending money to prevent defective products from falling into consumers’ hands. Cost of Conformance comprises two components, namely,

• Prevention Costs
• Appraisal Costs

Prevention Costs

As the name suggests, the main objective of prevention costs is to prevent producing poor quality products right from its initial stage. It includes all the costs implemented to reduce the number of defects. After all, it is always less expensive to prevent an error from occurring than to find the error and rectify it. Some examples of prevention costs include-

• Proper staffing of projects
• Training 
• Documentation
• Equipment
• Creating pilots to explore different approaches and selecting the right one

Appraisal Costs

Appraisal costs, also known as inspection costs, refer to the number of resources spent on identifying defects before they reach the customers. These include financial and non-financial costs that are incurred to assess and measure the quality of the deliverables. Some of the various types of appraisal costs include,

• Inspection or quality check
• Destructive testing / Crash tests
• External Quality Audits

One crucial point to keep in mind is that performing the aforementioned types of appraisal activities in no way guarantees the prevention of deformities from occurring. An alternative and better approach would be to hold employees accountable for their own quality control and create designs of the different effective ways of manufacturing a defect-free product. In this way, quality can be built into the product instead of relying on a team of inspectors for identification.

Cost of Non-Conformance

Cost of Non-Conformance refers to the number of resources spent on defective products despite efforts by an organisation to prevent them. It is commonly referred to as costs of poor quality in a project quality management plan. Therefore, the higher the quality, the lower the cost of non-conformance. It comprises two components,

• Internal Failure Costs
• External Failure Costs

Internal Failure Cost

In a project quality plan, internal failure cost refers to the number of resources spent on identifying defects within the project or organisation. It includes all the costs incurred to remedy the defects before they are shipped to the customers. Some examples include,

• Waste – Errors, poor organisation or miscommunication, which leads to the performance of unnecessary work or holding up stocks.
• Scrap – Products which are defective and cannot be sold or repaired.
• Rectification – Taking necessary actions to rectify or correct quality issues.
• Failure Analysis – Taking necessary steps to identify the cause of the internal product or service failure.

External Failure Cost

Last but not least, external failure cost refers to the costs incurred due to the shipment of a defective product to a consumer. External failure costs are usually hard to measure and even harder to predict. They can result in severe consequences, such as an organisation losing its valuable customers for delivering defective products. Therefore the best way to tackle this problem is by ensuring that no defective product reaches the consumers in any way. Some of the most common types of external failure cost in project quality management plans include,

• Warranty work
• Liabilities
• Repairs and Servicing
• Returns
• Lost sales

How To Calculate COQ In Projects?

As stated earlier, the prediction of the components of Cost of Quality can be pretty hard to predict or assess. Nonetheless, the formula to calculate COQ itself is pretty straightforward. 

Cost of Quality= Cost of Conformance + Cost of Non-Conformance

Here, the Cost of Conformance refers to the sum of prevention and appraisal costs. The cost of Non-conformance is the total of internal and external failure costs.

Why Should You Measure COQ?

Measuring the Cost of Quality is crucial to surviving in this dynamic business environment. It helps industries gain a competitive edge and lets businesses maintain a healthy and profitable bottom line. The following points highlight some of the main objectives of COQ and why it is so important. 

• Helps organisations to separate wrong and poor-quality output.
• Helps in problem-solving.
• Generates a single-point evaluation of quality performance.
• Evaluates and analyse the costs of failures and appraise them accordingly.

One small example to portray the importance of COQ might include the tragedy that occurred with the explosion of batteries of the Samsung Note 7 smartphone. The brand had to initiate a recall, which cost them $5.3 billion to collect all the devices and set up testing facilities accordingly. Apart from the monetary loss, the company also had to bear quite a heavy impact on its reputation.

Conclusion

A proper understanding of the different components of COQ enables project managers to take well-informed decisions on conformance activities, thus reducing the impact of non-conformance. Every industry or business needs to employ efficient resources for quality metrics to gain the upper hand in the market.

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The 6-10.5 month course is designed specifically for project managers, technical managers, and marketing professionals to upskill and enhance their product management skills with in-demand tools. With enrollment, candidates can enjoy multiple benefits ranging from Duke CE certification, 30+ live sessions, 1:1 mentorship calls, and networking with industry professionals, among various other benefits.

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