Quality is earned and achieved. Project Management Institute defines quality as the degree to which a set of inherent characteristics fulfill requirements and the cost of quality as the total costs of all efforts related to quality throughout the product life cycle. Failure to obtain these criterion results in poor quality, which can be realized internally through rework or externally through loss of sales and incurrence of liability. Use the following to determine the cost of poor quality, or COPQ.
Identify all of the activities affected because of poor quality. Conduct an assessment to examine all affected areas internal and external to the organization.
Enumerate the individual instances of rework or loss. Count the number of activities performed that created additional work or cost associated with the quality condition, in addition to those that are impacted with liability.
Determine the cost method. If resource impact is more prevalent determine the total number of resources impacted and multiply this count by the appropriate resource rate. Otherwise, use a unit cost method and determine the value of defective units and unsalable merchandise.
Summarize the costs. Summarize the total costs under each category and develop a break-even analysis for recovery. For example, if the resource count is 200 employees at $75 per hour, 3,000 defective units, and 10,000 unsalable units, then the COPQ is 15,000 plus 150,000 plus 500,000, or $665,000.