When planning for project and product quality, you want to be able to assess the cost of conforming to the quality requirements with the consequences of nonconformance.
As an example, if you are building a staging area to hold equipment, material, and supplies, you need to meet building codes, but doing more than that is probably overkill.
However, if you are building a corporate boardroom, you desperately want higher quality standards.
The cost of upgrading the requirements for the staging area would outweigh the benefits, but the benefits of higher quality requirements for the corporate boardroom would outweigh the costs within reason.
Therefore when you look at the cost of quality, you always want to keep in mind the cost benefit analysis of the investment in quality.
Cost benefit analysis
Cost benefit analysis compares the benefits of less rework and fewer errors and defects with the costs of implementing a quality program and meeting quality standards.
Cost of quality
There are two aspects to the cost of quality:
Cost of conformance. The cost of not allowing defects to occur. In other words, what are all the costs associated with having an acceptable end result?
Cost of nonconformance. The cost of failure
The cost of quality is a method of determining the costs incurred to ensure quality. Prevention and appraisal costs (cost of conformance) include costs for quality planning, quality control, and quality assurance to ensure compliance to requirements.
Failure costs (cost of nonconformance), include costs to reworked products, components, or processes that are noncompliant, costs of warranty work and waste, and loss of reputation
Cost of conformance are generally broken into two categories: prevention costs and appraisal costs
Prevention costs are associated with not allowing defects to occur, and some common prevention costs are:
Training. This can include training on a quick meant, training in a quality methodology, or any kind of skill knowledge needed to perform a role affective early
Robust processes and documentation. Having documented processes that reduce the variability of outcomes helps ensure quality outcomes. This can include policies, procedures, work instructions, checklists, technical manuals, and so on
Appropriate tools and equipment. To do a good job, you need the right tools, and you can’t expect a valid schedule for a complex project if you are working in a word processing program
In addition, you need to have the time to do the job right the first time.
Appraisal costs are associated with measuring results, and this includes costs such as:
Testing. This can include software testing, a process walkthrough, try to break the product, and so on
Inspections. Inspections include measuring, observing, and reviewing data
Test equipment calibration. If you have test equipment such as scales and thermometers, you need to make sure that test equipment is accurate and reliable
Independent validation. Getting an outside opinion or consultation is a form of appraisal cost. In fact, in many industries, this is considered a best practice
Quality assurance. Quality assurance comprises making sure that quality processes are being followed and are effective. It can include a quality audit
Quality control. Quality control is taking measurements and comparing them with the quality requirements to ensure the quality requirements are being met
The costs of nonconformance are basically the cost of failure, both internal and external failure costs would be included here.
Internal failure is a problem that the project team finds. Internal costs consist of:
Scrap material. This type of cost can include new parts as well as costs incurred to repair broken parts and keeping extra inventory on hand
Rework. The work to repair broken or malfunctioning products
Root cause analysis. Costs associated with discovering where and why the defect occurred as well as connecting the process allowed it to occur
External failure costs can get much higher. An external failure is not found by the project team. The defect is normally found by the customer.
Although external failure costs are not typically absorbed by the project, they do aspects the organization, sometimes quite a bit. External failure costs include all of the costs of internal failure plus:
This includes the shipping to and from the customer, or replacement of the parts of a product. It has incremental costs to help desks or customer support phone lines.
In some cases, this entails sending technicians to the customer site to repair or replace the malfunctioning product
In some circumstances, product failure will result in a lawsuit. At the very least, this entails the cost of legal representation. Of course, product recalls an class action suits can get extremely expensive
Loss of business and goodwill
If you release products that are prone to breaking or that aren’t affected, it will not take long before you lose customers, and as we all know, word of mouth can allow bad experiences with your company to spread fast
You can evaluate the cost of conformance with the cost of nonconformance by using cost benefit analysis