Cost of Poor Quality

Prevention, appraisal, internal failure, external failure.
COPQ and total cost of quality, as money and as a share of revenue.
Ref: Juran’s Quality Handbook · Feigenbaum · BS 6143-2 · ASQ

IPrevention Good quality cost

Training & capability development per year

Process control, planning & design per year

Money spent so defects do not happen: quality planning, capability studies, SPC, design reviews, supplier development, preventive maintenance, standard work.

IIAppraisal Good quality cost

Inspection & test labour per year

Gauges, calibration & audits per year

Money spent finding out whether defects happened: incoming and in-process inspection, final test, gauge calibration, measurement systems analysis, internal audits.

IIIInternal failure Cost of poor quality

Scrap per year

Rework, sorting & re-inspection per year

Downtime & yield loss from defects per year

Concessions, downgrading & excess inventory per year

Failures you caught before the customer did. This is the category most plants can actually cost, and it is still usually understated — sorting and re-inspection hours rarely get booked anywhere.

IVExternal failure Cost of poor quality

Warranty & returns per year

Complaint handling & corrective action per year

Recalls, sorting at customer & penalties per year

Expedited freight to cover defects per year

Failures that reached the customer. Lost future business belongs here conceptually and is deliberately not a field — nobody can measure it, and a made-up number would swamp the ones you can defend.

VScale

Annual revenue for share-of-sales

Employees optional, for per-head

VIThe four categories

VIIQuality cost summary

Measure	Value	Unit

VIIIWhat the ratios say

Indicator	Value	Reading

IXConditions at analysis

XHow to read the number

The prevention-appraisal-failure model splits quality spending into money spent stopping defects, money spent finding them, and money lost because they happened. The first two are investments you chose. The last is a bill you were sent.

COPQ = Internal failure + External failure Total cost of quality = Prevention + Appraisal + COPQ

The single most informative output here is not the total — it is the prevention-to-failure ratio. A plant spending far more on failure than on prevention is paying to discover its defects rather than paying to not make them, and that is a spending mix you can change without any new equipment. The classic pattern in a plant that has never measured this is appraisal-heavy and prevention-light: a lot of inspectors, very few capability studies.

The external-to-internal ratio is the second thing to look at, because it is an escape-rate signal. Failures found in-house are expensive; failures found by your customer cost several times more for the same defect, and they spend your reputation as well as your money. If external failure is a large share of the total, the containment problem is upstream of the cost problem.

Two honest cautions. First, published benchmarks put total cost of quality somewhere between 5% and 30% of revenue depending on industry and maturity, which is a range so wide it should be used to sanity-check your arithmetic and not as a target. Second, this is an estimate assembled from accounts, not a measurement. It is exactly the right tool for sizing a business case and exactly the wrong tool for claiming a saving afterwards — for that you need the measure on the process itself, before and after, which is a different job than this page does.

Related: First Pass Yield & RTY · Sigma Level / DPMO · Cpk Calculator · FMEA RPN Calculator · Tying an improvement to a measure instead of an estimate

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