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Dawn Keller

Quality Insider

Cost of Quality

Well, hello, my old, complex friend...

Published: Friday, February 15, 2013 - 10:10

As I sat down to examine cost of quality (COQ) at Minitab, I flashed back to my certified quality engineer (CQE) exam almost 20 years ago. I can still vividly remember staring down at a particularly difficult cost of quality question and wondering why I didn’t just follow my fourth-grade career assessment and become a novelist.

I briefly considered fleeing the building, buying a bottle of absinthe, and channeling Hemingway. But then I remembered that, even with absinthe, I was no Hemingway and was probably ill-equipped to produce the next great novel. So, alas, I stayed, answered the COQ questions, and here I am 20 years later: assessing the cost of software quality.

OK, the absinthe part isn't true. Everyone knows that the Alcohol and Tobacco Tax and Trade Bureau didn’t lift the absinthe ban until 2007.

Though it is a bit complex to calculate, cost of quality is a very worthwhile evaluation. The study of COQ, and process improvements surrounding it, can help to reduce costs while improving outgoing quality levels.

Components of COQ

The cost of quality has two main components: the cost of good quality (i.e., the cost of conformance) and the cost of poor quality (the cost of nonconformance).

The cost of poor quality consists of those expenses surrounding the failure to meet customer requirements. These include internal failure costs such as redesigning, reworking due to design changes or defects (also called “bugs” in the software world), and the costs of retesting. It also includes external failure costs like lost sales, technical support calls, and processing customer complaints.

The costs of good quality are the costs associated with preventing and appraising the quality of the product. Appraisal costs include such things as testing throughout development and product reviews. Prevention costs include things like quality improvement activities, education, and failure prevention analysis (example: FMEA analysis).

Impacts on COQ

Studies have shown that more than half of software defects are introduced in the design and requirements phase (versus the coding phase). Most people in the software business have probably seen a variation of the “Defect Cost by Development Phase” graph outlining the relative costs to fix software defects. If you haven’t, here’s the bottom line: The cost to fix an error gets exponentially worse as time goes on. It is estimated to be 100 times more expensive to fix an error in the maintenance phase than in the design phase. This study holds true at Minitab, as well. The earlier we detect defects, the better. Nobody likes redesigns. It’s that simple.

In addition, a study has shown that a typical company spends 5–10 percent of quality costs on prevention, 20–25 percent on appraisal, and the remaining 65–75 percent on internal and external failure costs.

Managing the COQ

One view of COQ suggests that we should shift our costs from rework/failure to appraisal and prevention activities. While it’s clearly better to catch stuff the first time around, I’m not necessarily a fan of the “more is better” philosophy. Whether it is more code reviews or more design reviews, in my opinion, it’s not as simple as cost shifting.

That’s why we quality engineers get paid the big bucks, right?

So, when Minitab assesses cost of quality, it’s part of a broader continuous improvement effort. We definitely want to shift our focus to earlier in the process, but not necessarily by adding more inspection to the front end. Our goal is to prevent issues and, if they occur, to detect them as soon as possible. We use various techniques to do that, including:
Get our customers involved. Early. Earlier than early.
Plan. Plan. Plan. We are thoughtful about how we plan feature development throughout a release cycle. If we are trying something that might have an impact across the application, we want it done as early as possible. The feature will then benefit from the development and testing of every other feature implemented after that.
Test early.  Test often. We focus on validation as early as design. Ensuring that requirements are met is done initially and continually.
Ownership. We all own the quality of the product at Minitab. Don’t deliver unclear or incomplete designs. Don’t deliver buggy code. Don’t deliver buggy software.

In the end, maybe calculating COQ isn’t as glamorous as writing the next great novel. I doubt my quotes are going to appear on Pinterest. (I’ll keep looking, but I doubt it.) I’m just an engineer who is passionate about customer focus, quality, and efficiency, but that’s glamorous enough for me.

Now, where’s that absinthe?


About The Author

Dawn Keller’s picture

Dawn Keller

Dawn Keller is the quality assurance department manager at Minitab. Her background is in quality and reliability engineering. Keller worked in the manufacturing sector for more than a decade before joining Minitab and the software development industry.



Source to study you are referring

Hello Ms. Keller,

You refering to a study in this artical, that typical companies spend "5–10 percent of quality costs on prevention, 20–25 percent on appraisal, and the remaining 65–75 percent on internal and external failure costs."

Can you please tell me where to find this study?

Thanks you!

CoQ leads to... ?

Dear Ms. Keller,

Much of what you've written has been written before. It's almost a mantra in industry that catching and fixing issues earlier in the process is cheaper than doing it later. All that is well and good. But, I am interested in understanding what actions follow after a quality professional presents the meticulously prepared cost-of-quality analysis to their management.

I've worked with many companies. Not any of them bothered with cost-of-quality analysis. That's because management understands well the costs associated with scrap, rework, repair, warranty, etc. I just haven't met anyone willing to do much about it other than set absurd targets without defining the methods of achieving them.

Has your cost-of-quality analysis led to actual actions being initiated to address the problem areas? While I believe that cost-of-quality analysis has been used to spur management into starting quality projects, a basic lack of appreciation of what quality is dooms those projects to failure when cost reductions aren't immediately apparent.

I believe for an organization to be successful and have a long life (>50 years), it has to have a quality mindset. An intrinsic motivation to continually improve on past performance. The cost-of-quality takes care of itself in the process.

Best regards, Shrikant Kalegaonkar (twitter: @shrikale, linkedin: http://www.linkedin.com/in/shrikale/)

Absinthe Dilemma

What is cost? What is non-cost? To pay, to own, may be to dream. Yes, I'm complex, too - but I like hard facts, though rude they can be. Please, Mrs. Keller, name me just one manager who cares for quality - or non quaiity - cost, and I'll pay you a best Maine lobster dinner. The fact being that most managers just eye the "last bottom right figure" on the budget balance papers, that's what they do. It's management constrainment in all senses, isn't it? The management process (self) control limits simply don't match with the specifications limits. Ride my seesaw: cost of quality or cost of non-quality? Please, let's correctly baptize costs: poor effectiveness, poor efficiency, POOR MANAGEMENT, poor skills, poor motivation. But rich, very rich salaries. Thank you.