COPQ – Cost of poor quality
COPQ is the costs generated as a result of producing defective material or delivering defective service.
Quality professionals have often looked at the cost of poor quality (COPQ) as one approach to quantifying the financial benefits of quality actions.
Armand V. Feigenbaum, while working at General Electric Company’s Schenectady Works in 1943, developed a dollar-based reporting system called “cost of quality”. This system pulled together all the costs related to developing the quality system and inspecting products, as well as the cost incurred when the product failed to meet requirements. He then provided management with a report that got their attention – one that was based on dollars, the language of top management and the stock-holder. The “cost of quality” system was adopted during the following year by GE’s Jet Engine Group in Massachusetts. By 1948, it was in use throughout GE USA.
Dr Feigenbaum now calls quality costs “cost of delivering customer satisfaction”.
Another person that has furthered the quality cost concept is Philip Crosby.
Phil wrote “Quality is Free”. In this book, he divided Quality Costs into the following three categories:
(1) Prevention costs.
(2) Appraisal costs.
(3) Failure costs.
COPQ contains three broad dimensions of costs:
1. Appraisal: Costs associated with efforts in quality measurement, management and planning including those spent implementing policies, procedures and audit plans. The labor expenses associated with a quality organization could be included as part of its appraisal costs, but they are usually intangible and hard to measure.
2. Preventive: Costs associated with preventing defects and errors, including expenses associated with inspection, testing and auditing. These costs are sometimes difficult to determine and tend to be more intangible.
3. Failure: These costs can be expressed as both internal and external and include the expenses associated with a product or service failure in production or at a customer’s location. Some examples of these types of costs are spoilage, warranty returns, scrap and rework. Similar costs are underutilization, lost revenue, lost margins, lost customers or patients, lost renewals and complaint handling costs. These costs are usually easier to identify and measure, and most are directly included on an organization’s financial statement.
Many organizations limit their COPQ measurements to failure costs because it is easier to show their financial impact on the bottom line.