The cost of quality – OPEN

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Topic 8.3: The cost of quality

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Like all of the other project management processes, the way you monitor and control your project’s performance should be scaled to the size and criticality of the project.

Cost of quality (or COQ as it is sometimes called) is an analysis of the all the assurance and control costs likely to be incurred over the life of the project.

It is one way to determine the amount of time and effort you should put into monitoring and controlling the quality of the project and its deliverables.

So how much does quality cost?

Conformance costs include the cost of preventing product or service failure, by adding quality to the production process, and the cost of assessing quality through various appraisal techniques. 

In other words, it is the money spent during the project to meet client or customer requirements.

Prevention costs – the costs of building a quality product – might include:

  • Training staff
  • Documenting processes
  • Purchasing or hiring the right equipment and materials, and
  • Allowing enough time to do the job right.

Appraisal costs – the costs of inspecting quality in project outputs – can include:

  • Testing, including destructive losses, and
  • Inspections and audits.

Non-conformance costs arise through failure.

Failure costs are often categorised to be either internal costs (as in, those found by the project) or external costs (those found by the customer).

Failure costs are also called the cost of poor quality; in other words, it is the money spent during or after the project to make things right.

Internal failure costs – those found as a result of appraisal – will include:

  • Re-doing the work, and
  • Scrap

External failure costs – those found by the customer – are much more expensive, and include:

  • Warranty work
  • Product liability and damages, and
  • Lost future business.

The primary benefits of meeting quality requirements can include less rework, higher productivity, lower costs, and increased stakeholder satisfaction.

More often than not, then, an investment in monitoring and controlling project performance is of greater value than merely hoping for the best.

This is consistent with our earlier observation that prevention trumps inspection nearly every time.

In some cases, the cost of 100% quality may not be worth the expense of assuring it.

For example, we may be machining our outputs to within tolerances of ±0.1%, when fit for purpose (from the customer’s point of view) may be ±5%.

This is another example of the phenomenon we referred to earlier as gold-plating.

So how do we know when enough is enough?

Preparing a mini (usually informal) business case for our quality management tasks allows us to compare the cost of each quality step to the expected benefit.

Business case, change request - pretty much any project decision

For example, how sophisticated should our project records management system be?

Should we invest in a complicated individual permissions structure to prevent the unauthorised editing of documents?

Should we update stakeholders on project progress weekly, fortnightly or monthly?

What are the costs and benefits of each alternative?

As you can see, challenging our decisions about process using cost-benefit and risk analyses enables us to properly balance and optimise the cost of quality with the benefits of our quality management activities.

Some project decisions can have an external impact on operational quality costs.

These might include product returns, warranty claims and recall campaigns.

The sponsoring organisation may therefore choose to invest in product quality improvements that are not optimally efficient for the project itself.

Especially in projects that feed operations, a higher than usual attention to defect prevention and appraisal may realise significant downstream, quality-related operational benefits.

This may be despite the fact that the project accounts are apparently wearing a higher than usual quality cost.

Similarly, the cost of implementing new project management practices and procedures may be disproportionately worn by the first projects that apply them.

Nevertheless, the lifetime benefits to an organisation that delivers tens, hundreds or even thousands of projects may make such a change well worth the effort.

Good practice depends on you the project manager in partnership with other key stakeholders determining what is appropriate and effective for the needs of your unique undertaking.