What Is the Cost of Quality?

Quibble about the definition. What matters is what you do about it.

Published: Wednesday, July 23, 2014 - 12:11

Recently I walked headlong into a conversation on quality costs, or the cost of poor quality (COPQ), or the cost of quality, or some other term I’ve forgotten from that discussion. I realized that this area is very well-developed in the world of quality, but perhaps not fully understood by professionals outside of the quality department. Perhaps this is due to “finance for managers” classes clouding the issue. Or perhaps it is genuinely not understood by management.

I believe that any manager should have a basic understanding of finance and accounting. Most companies, for-profit or not, need to have leadership that can appreciate which way money flows, and what are the costs in the business. Part of this involves thinking about the causes of your quality costs.

In my career, the cost of quality is usually a divisive topic, mainly due to a lack of a clear explanation as to what it is. There are two distinct camps: the group that believes quality costs are costs that go into creating quality in the business, and the other group that believes that quality costs are costs resulting from not achieving quality.

Therefore, let's get a snappy explanation from the American Society for Quality (ASQ): “The ‘cost of quality’ isn’t the price of creating a quality product or service. It's the cost of not creating a quality product or service.” I’ll relate my experiences on the negative or non-quality aspect of the principle in more depth later in this column. Despite the ASQ’s definition, the fiery debate of the true definition of the cost of quality will burn endlessly. For me, what’s more important is what you do with this information, rather than your definition.

To have the cost of quality as a measure in a business is a useful metric; however, it must come with a warning: Be careful how you use it. In chapter eight of his book Juran’s Quality Handbook (McGraw-Hill Professional, Joseph Juran, and A. Blanton Godfrey, 1998) Joseph Juran expresses four lessons learned on the use of quality costs:
1. The language of money is essential.
2. The meaning of “quality costs”
3. Quality cost measurement and publication does not solve quality problems.
4. The scope of quality costs is too limited.

Rather than explain in my own words, and poorly attempt to emulate what is in the book, I would direct you to A. Blanton Godfrey’s columns related to cost of quality, which are readily available on the Quality Digest website. I also strongly suggest that you read Juran’s book.

The area that I really want to explore is the concept that “publication does not solve quality problems.” In Juran’s book, it’s put very directly that “some organizations evaluate the cost of poor quality and publish it in the form of a scoreboard in the belief that publication alone will stimulate the responsible managers to take action to reduce the costs. These efforts have failed. The realities are that publication alone is not enough. It makes no provision to identify projects, establish clear responsibilities, provide resources to diagnose and remove causes of problems, or take other essential steps. New organization machinery is needed to attack and reduce the high costs of poor Quality.”

I’m unsure what “new organization machinery” is, but I’ll interpret it as taking a different approach to addressing quality issues rather than putting them on a scoreboard. Trust me when I say I’ve used cost of quality in different ways to effect change, without any expectation that these costs would go away if I just measured them.

Long ago, I worked in a manufacturing environment where the “scrap” quality costs were phenomenal. Numbers were so large and the dollar figures so huge that the meaning was lost on employees and managers. Because neither employees or managers could relate to the numbers, the perception was that it was the “company’s” money. I had to change this, to challenge the mindset, and get the focus back on winning the team over to come together and address this massive problem. I alone could not achieve this, and I had no idea or experience about how to fix these problems. All I knew was that they needed to be corrected, and quickly.

A much younger version of myself thought that putting the cost of quality into relatable terms was a much better to get the issue across and stimulate discussion. I approached my management team, and they giggled at my suggestion… well, maybe they didn’t actually giggle, and to their credit, they did support it. So I went away and created little posters with pictures of the number of cars that we could have bought with scrap costs, and pinned them on the manufacturing cells’ communication boards. I put my name at the bottom so team members could come to me with suggestions for improvements. From a distance it looked like a photo of a parking lot; there were a lot of cars on that poster.

Granted, my approach didn’t win over the trade union leaders in the area, but for many of those working there, it did create a shift in the appreciation on the cost of quality. Luckily enough, employees did give me some ideas that were enough to drive actions for improvement. Like any change for improvement, they came at a cost. Comparing the cost for improvement against the cost of not making the change (i.e., continuing to create scrap or quality costs) proved strong enough to influence change in the business.

Later in my career and more recently, I would see my team use the same technique. However, being as I am now in America, and the South, the pictures of cars were replaced with pictures of trucks, and of course, significant improvements have been achieved.

Establishing your quality costs is tricky, and will be ever-changing. If you wish to progress in your career in quality, understanding the relationship between the dollar sign and influencing change will be an asset for you. If you can demonstrate, through small investments, that costs greater than the salary you earn in a year can be magically removed, you will become instantly valuable to your employer. Increasing quality costs will not help you, but reducing them will. As Bruce Lee (in my opinion the greatest Improvement Ninja of all time) wrote regarding “qualities” in his Tao of Jeet Kune Do (Ohara Publications, 1975): “It’s not the daily increase but daily decrease. Hack away the nonessentials.”

About The Author

Paul Naysmith

Paul Naysmith is the author of Business Management Tips From an Improvement Ninja and Business Management Tips From a Quality Punk. He’s also a Fellow and Chartered Quality Professional with the UK’s Chartered Quality Institute (CQI), and an honorary member of the South African Quality Institute (SAQI). Connect with him at www.paulnaysmith.com, or follow him on twitter @PNaysmith.

Those who have read Paul’s columns might be wondering why they haven’t heard from him in a while. After his stint working in the United States, he moved back to his homeland of Scotland, where he quickly found a new career in the medical-device industry; became a dad to his first child, Florence; and decided to restore a classic car back to its roadworthy glory. With the help of his current employer, he’s also started the first-of-its-kind quality apprenticeship scheme, which he hopes will become a pipeline for future improvement ninjas and quality punks.