Content

Introduction

Components COPQ Iceberg Why measure COQ?

COQ in DEL
Benefits

Conclusion

Introduction
What is COQ?
History:
It was Joseph Juran who first discussed the cost of quality analysis in 1951 in the first edition of Quality Control Handbook

and it was Armand Feigenbaum who identified four quality cost categories in 1956 in Total Quality Control in the Harvard Business Review, Vol. 34

The Quality Cost Committee was established by the then ASQC in 1961

COQ - Definition
Its a term thats widely used and widely
misunderstood

is a means to quantify the total cost of: Quality-related efforts and Deficiencies

Quality costs are the costs associated with

PreventingInvesting in the prevention of nonconformance to requirements

Finding. Appraising a product or service for conformance to requirements

Failing to meet requirements.Correcting defective work

COQ Components
Preventive Cost
The costs of all activities specifically designed to prevent poor quality in products or services. Examples are the costs of: New product review Quality planning Supplier capability surveys Quality improvement team meetings Quality improvement projects Quality education and training
In the ideal situation, Prevention costs will be the largest portion of the Total Cost of Quality Typically, prevention is less than 10% of Total COQ where it should be about 70%

COQ Components

COQ Components
Appraisal Cost
The costs associated with measuring, evaluating or auditing products or services to assure conformance to standards & performance requirements. These include the costs of: Inspection/test of purchased material In-process and final inspection/test Product, process or service audits Calibration of measuring and test equipment

E.g. Radiography appraisal cost is the amount spent to radiograph a weld. This includes the; Cost of RT equipment RT personnel salaries/Mhrs RT film costs etc.

COQ Components

COQ Components
Failure Costs
The costs resulting from products or services not conforming to requirements or customer/user needs. Failure costs are divided into internal and external failure categories.
Internal Failure Costs Failure costs occurring prior to delivery or shipment of the product, or the furnishing of a service, to the customer. Examples are the costs of: Scrap Rework Re-inspection Re-testing

COQ Components

COQ Components
Failure Costs (Contd.)
External Failure Costs Failure costs occurring after delivery or shipment of the product and during or after furnishing of a service to the customer. Examples are the costs of: Processing customer complaints Customer returns Warranty claims Product recalls

COQ Components

COQ Components
Is Cost related to
Prevention of NonConformance ?

YES

PREVENTION

NO
Is Cost related to Evaluating the Conformance ?

YES

APPRAISAL INTERNAL FAILURE

Is Non-Conformance

NO
Is Cost related to

Non-conformance ?

YES

found prior to Shipment ?

YES NO

NO
Not a Quality Cost

EXTERNAL FAILURE

Components

COQ Components
COPQ is the sum of all costs that would disappear if there were no quality problems Juran

PAF Model
FC1

You can easily spend 15 30% of your sales dollar on CONC - Crosby
FC2

In most companies the costs of poor quality runs at 20 30% of sales - Juran
The relationship between the quality-related costs of prevention, appraisal and failure (the P-A-F model) and increasing quality awareness and improvement in the organization

Net profits for many companies is less than 5% of sales

Total COQ on the average is 25% of sales COPQ on the average is 17% of sales

COPQ Iceberg

Why measure COQ?

When you measure what you are speaking about and express it in numbers, you

know something about it Kelvin You cannot manage what you cannot measure Anon

Result of an ASQ survey of CEOs: Over 70% thought their organizations COPQ was less than 10% of Sales 27% admitted they had no idea what their companies COPQ was One of the conclusions of those conducting the survey: Too many people still do not understand the relationship between cost and quality

Benefits of COQ

Why measure COQ?

Measure COQ - Why? COQ can be used to identify quality improvement candidates

COQ provides one measure of comparing the success of projects

COQ can provide cost data for motivational purpose Money is the language of management, you need to show them the numbers - Crosby

Goal
Facilitate Quality Improvements that leads to operating cost reduction Opportunities. To identify all internal failures and resultant costs and then systematically identify and eliminate root causes until Internal failure costs are eliminated

Benefits of COQ Quality is a Profit Center

Decreases
Defects Overall Costs Returned Goods Customer Complaints Owner & Mgmt. Stress Decrease Legal Costs Employee Turnover

Increases
Sales Profit Capacity Customer Satisfaction Market Share Competitive Edge Employee Satisfaction

Benefits of COQ

COQ in DEL
Elaborated MS of COQ available in DIMS ( QA&QC-MS-04)

COQ in DEL

COQ in DEL

COQ in DEL

COQ in DEL
No Monitoring of COQ at sites/works No Reporting of COQ at sites/works No estimation of Rework

No estimation of Re-inspection
No estimation of Failure costs No estimation of effectiveness of quality system at site

COQ in DEL
Flow of Data pertaining to COQ has been started from Local and Overseas projects. Need to ensure that we must record failure cost against all the re-works Role of Planning Deptt is very important to monitor this important tool
Cost of Quality (COQ)
Local Projects Project Name BHP Shel l Ta nks FCCL Byco PARCO Sa tpa ra KMW LMW Total (Local) Appraisal Cost (Rs.) 1,949,180 204,230 0 148,896 56,800 408,900 3,422,864 1,029,460 Failure Cost Total COQ (Rs.) (Rs.) 31,027 69,720 0 16,864 34,540 617,940 40,475 11,047 1,980,207 273,950 0 165,760 91,340 1,026,840 3,463,339 1,040,507 Project Name IGD 5 Da ewoo SGD Borouge AMW HMW PMP (QR) Ba rza n Total (Overseas) Overseas Projects Appraisal Failure Total COQ Cost (AED) Cost (AED) (AED) 1,519,521 15,005 209,708 0 2,977,664 342,751 45,000 0 56,000 1,575,521 20,292 0 0 21,425 799 0 35,297 209,708 0 364,176 45,799 0 Total COQ (Rs) 37,639,197 843,245 5,009,924 0 71,349,396 8,700,165 1,103,756 0

8,916 2,986,580

PKR 8,041,943

PKR 124,645,683 PKR 132,687,626

Grand Total (Local + Overseas)

Conclusion
The goal of using COQ is to increase prevention activities in order to eliminate internal and external failures and to reduce appraisal activities.