WE BELIEVE WE CAN

COST OF QUALITY
REHAN AHMAD
Total Quality Management

Assignment # 3

11th June, 2020

Lahore, Pakistan
Table of Contents

I- Executive
Summary ............................................................................................................... 2
II- Participants ............................................................................................................................
3
III- Terms and Definition ...........................................................................................................
4
A- Quality? ....................................................................................................................... 4
B- Cost of Quality? .......................................................................................................... 4
C- Cost of Good Quality?................................................................................................. 4
• Appraisal Cost ............................................................................................................. 4
• Prevention Cost ........................................................................................................... 4
D- Cost of Poor Quality? .................................................................................................. 4
• Internal Failure Cost .................................................................................................... 4
• External Failure Cost ................................................................................................... 4
IV- Company’s Introduction ......................................................................................................
4
A- Traditional Automobile Industry ................................................................................. 4
B- Non-Traditional New Services Industry ..................................................................... 4
V- Cost Categories .....................................................................................................................
4
A- Appraisal Costs ........................................................................................................... 4
B- Prevention Costs .......................................................................................................... 5
C- Internal Failure Cost .................................................................................................... 6
D- External Failure Cost ................................................................................................... 7
VI- Comparative Analysis .........................................................................................................
8
A- Inter Organizational Cost ............................................................................................ 8
• Tradition .................................................................... Error! Bookmark not defined.
• Non Traditional ......................................................... Error! Bookmark not defined.
B- Intra Organizational Cost .......................................... Error! Bookmark not defined.
• Traditional ................................................................. Error! Bookmark not defined.
• Non Traditional ......................................................... Error! Bookmark not defined.

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VII- Conclusion ....................................................................................................................... 11
Appendices ............................................................................................................................... 11
I- Executive Summary
In this detailed comparative cost analysis study between two different industries, we
scrutinized multiple factors, incorporating functional and cross functional data analytics. We
utilized this opportunity to look at the departmental functions in comparative to cost of good
quality and cost of poor quality. Here we present the cost comparison of two different
companies, one being the automobile vendors industry part, traditionally opt to save expense
in terms cost of good quality and eventually a higher cost of poor quality they face, while the
other company as it belongs to service industry prefers to invest more on cost of prevention,
also known as cost of good quality has overall less expenditure on cost of poor quality. The
data collected is fact based, and projects the actual cost for future, be the sales remains
constant with the previous years. This study suggests to invest a specific amount as cost of
prevention rather than a higher cost of poor quality.

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II- Participants

 Name!
ID!
Work; Prevention Cost

 Samreen Khalid
F2019198006
Work; Internal Failure Cost

 Name!
ID
Work; External Failure Cost

 Syed Jawwad Ul Hassan

S2020198002
Work; Appraisal Cost

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III- Terms and Definition
A- Quality?
Measure of excellence or a state of being free from defects, deficiencies and significant
variations.

B- Cost of Quality?
Sum of costs incurred in maintaining acceptable quality levels plus the cost of failure to
maintain that level (cost of poor quality).

C- Cost of Good Quality?

 Appraisal Cost
Appraisal costs are a specific category of quality control costs. Companies pay
appraisal costs as part of the quality control process to ensure that their products
and services meet customer expectations and regulatory requirements. These costs
could include expenses for field tests and inspections.

 Prevention Cost
Prevention costs are costs of all activities that are designed to prevent poor quality
from arising in products or services.

D- Cost of Poor Quality?

 Internal Failure Cost
Internal failure costs are costs that are caused by products or services not
conforming to requirements or customer/user needs and are found before delivery
of products and services to external customers. They would have otherwise led to
the customer not being satisfied. Deficiencies are caused both by errors in
products and inefficiencies in processes.

 External Failure Cost

External failure costs are costs that are caused by deficiencies found after delivery
of products and services to external customers, which lead to customer
dissatisfaction.

IV- Company’s Introduction

A- Traditional Automobile Industry

Introduction and relevant functions.

B- Non-Traditional New Services Industry

Introduction and relevant functions.

V- Cost Categories

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A- Appraisal Costs;
• Traditional
Appraisal Cost
SR Cost Category Amount Source Remarks
No
1 Development Inspection 1,500 QC- Development
2 Testing 1600 Testing Equipment Log Register
3 Internal Quality Audits 1265 Internal Audit Findings
4 Performance Trials 1042 Performance CheckSheets
5 Product Verification 968 PV I
6 Process Verification 1004 PV II
7 Equipment Verification 1620 Testing Log
8 Design Validation 926 COD Register
9 Destructive Testing 1549 DT Samples Register
10 Sample Trials 3526 Boundary Sample Master File
• Non-Traditional
Appraisal Cost
SR Cost Category Amount Source Remarks
No
1 Development Inspection 6550 QC- Development
2 Testing 2650 Testing Equipment Log Register
3 Internal Quality Audits 3520 Internal Audit Findings
4 Performance Trials 2560 Performance CheckSheets
5 Product Verification 1530 PV I
6 Process Verification 2650 PV II
7 Equipment Verification 5000 Testing Log
8 Design Validation 6540 COD Register
9 Destructive Testing 3550 DT Samples Register
10 Sample Trials 4450 Boundary Sample Master File
B- Prevention Costs
Prevention Cost
SR No Cost Category Amount Source Remarks
1 Prototyping 1,000 LAR Report
2 Requirements Review 900 MOM; Specification Meeting
3 Quality Planning 1265 QAV I
4 Quality Training 1042 TNA Data Reports
5 Production Training 968 TNA Data Reports

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 6 Equipment Design Analysis 1004 CFC, Design Change Sheet
7 SQM Compliance 944 QAV II
8 Awarness Sessions 926 Training Records
9 Tools Calibration 993 Calibration Reports
10 Documentation 958 Master Documents
 Non-Traditional
Prevention Cost
SR Cost Category Amount Source Remarks
No
1 Prototyping 5000 LAR Report
2 Requirements Review 2000 MOM; Specification Meeting
3 Quality Planning 3520 QAV I
4 Quality Training 6000 TNA Data Reports
5 Production Training 4530 TNA Data Reports
6 Equipment Design Analysis 2550 CFC, Design Change Sheet
7 SQM Compliance 2400 QAV II
8 Awarness Sessions 1500 Training Records
9 Tools Calibration 2500 Calibration Reports
10 Documentation 1000 Master Documents
C- Internal Failure Cost
• Traditional
Internal Failure Cost
SR No Cost Category Traditional Source Remarks
1 Labour 2000 Payment Records
2 Corrective Action 1900 CAR's
3 Updating Documents 5000 Master Document Revision
4 Scraps 1600 Internal Quality Records
5 Repair Rework 2580 Internal Quality Records
6 Design Changes 4520 Tooling Improvement Kanban
7 FMEA 1200 FMEA Records
8 Re-Inspection 500 Overtime Records
9 Down Time 700 Production Report
10 Overtime 1000 Overtime Records
• Non-Traditional
Internal Failure Cost
SR No Cost Category Traditional Source Remarks

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 1 Labour 6500 Payment Records
2 Corrective Action 3000 CAR's
3 Updating Documents 7000 Master Document Revision
4 Scraps 2500 Internal Quality Records
5 Repair Rework 3000 Internal Quality Records
6 Design Changes 5000 Tooling Improvement Kanban
7 FMEA 1500 FMEA Records
8 Re-Inspection 2500 Overtime Records
9 Down Time 3000 Production Report
10 Overtime 3000 Overtime Records
D- External Failure Cost;
• Traditional
External Failure Cost
SR Cost Category Traditional Source Remarks
No
1 Complaints 2000 QDR's
2 Goodwill (Share Price) 2650 Share Price Drop
3 Failures 1560 Rejection Records
4 Service (Logistics) 5000 Re-servicing Data Sheets
5 Replacement 4230 Replacement Register
6 Gurrantee 3530 Gurrantee Data Analysis
7 Warranty 4560 Gurrantee Data Analysis
8 Compensation 2570 Quality Compensation Records
9 Loss of Sales 3000 Sales Record
10 Penalities 2900 Fine and Legislative Expenses
• Non-Traditional
External Failure Cost
SR Cost Category Traditional Source Remarks
No
1 Complaints 3500 QDR's
2 Goodwill (Share Price) 5000 Share Price Drop
3 Failures 2590 Rejection Records
4 Service (Logistics) 7550 Re-servicing Data Sheets
5 Replacement 5000 Replacement Register
6 Gurrantee 5560 Gurrantee Data Analysis
7 Warranty 4690 Gurrantee Data Analysis
8 Compensation 3000 Quality Compensation Records

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 9 Loss of Sales 3500 Sales Record
10 Penalities 4610 Fine and Legislative Expenses

VI- Comparative Analysis

A- Intra Organizational Cost
• Appraisal Cost
Appraisal Cost
SR No Cost Category Traditional Non- Balance Remarks
Traditional
1 Development Inspection 1,500 6550 5,050
2 Testing 1600 2650 1,050
3 Internal Quality Audits 1265 3520 2,255
4 Performance Trials 1042 2560 1,518
5 Product Verification 968 1530 562
6 Process Verification 1004 2650 1,646
7 Equipment Verification 1620 5000 3,380
8 Design Validation 926 6540 5,614
9 Destructive Testing 1549 3550 2,001
10 Sample Trials 3526 4450 924
O Total 15,000 39,000 24,000
• Preventive Cost
Prevention Cost
SR No Cost Category Traditional Non- Balance Remarks
Traditional
1 Prototyping 1,000 5000 4,000
2 Requirements Review 900 2000 1,100
3 Quality Planning 1265 3520 2,255
4 Quality Training 1042 6000 4,958
5 Production Training 968 4530 3,562
6 Equipment Design Analysis 1004 2550 1,546
7 SQM Compliance 944 2400 1,456
8 Awarness Sessions 926 1500 574
9 Tools Calibration 993 2500 1,507
10 Documentation 958 1000 42

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 O Total 10000 31000 21000
• Internal Failure Cost
Internal Failure Cost
SR No Cost Category Traditional Non-Traditional Balance Remarks
1 Labour 2000 6500 4,500
2 Corrective Action 1900 3000 1,100
3 Updating Documents 5000 7000 2,000
4 Scraps 1600 2500 900
5 Repair Rework 2580 3000 420
6 Design Changes 4520 5000 480
7 FMEA 1200 1500 300
8 Re-Inspection 500 2500 2,000
9 Down Time 700 3000 2,300
10 Overtime 1000 3000 2,000
O Total 21000 37000 16000
• External Failure Cost
External Failure Cost
SR No Cost Category Traditional Non-Traditional Balance Remarks
1 Complaints 2000 3500 1,500
2 Goodwill (Share Price) 2650 5000 2,350
3 Failures 1560 2590 1,030
4 Service (Logistics) 5000 7550 2,550
5 Replacement 4230 5000 770
6 Gurrantee 3530 5560 2,030
7 Warranty 4560 4690 130
8 Compensation 2570 3000 430
9 Loss of Sales 3000 3500 500
10 Penalities 2900 4610 1,710
O Total 32000 45000 13000

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B- Cost of Quality
COMPARATIVE ANALYSIS
Cost of Quality

SR No Cost Category Traditional Non- Balance Remarks

Traditional
1 Total Revenue 110000 245000 135000
2
2 Total Number of Parts Sold 5000 80000 75000
0 3 Total Preventive Cost 10000 31000 21000
1 4 Preventive Cost % 9.09% 12.65% 3.56%
9 5 Total Appraisal Cost 15000 39000 24000
6 Appraisal Cost % 13.64% 15.92% 2%
7 Total Internal Failure Cost 21000 37000 16000
8 Internal Failure Cost % 19.09% 15.10% -3.99%
9 Total External Failure Cost 32000 45000 13000
10 External Failure Cost % 29.09% 18.37% -10.72%
11 Appraisal vs Preventive 5000 8000 3000
12 Preventive vs Appraisal Ratio 1.5 1.258064516 -0.241935484
13 External vs Internal Failure 11000 8000 -3000
14 External vs Internal Failure Ratio 1.5238095 1.216216216 -0.307593308
15 Total COGQ 25000 70000 45000
16 COGQ % 23% 29% 6%
17 Total COPQ 53000 82000 29000
18 COPQ % 48% 33% -15%
19 COGQ vs COPQ 28000 12000 -16000
20 COGQ vs COPQ Ratio 0.1491477 0.234920635 0.085772908
O Total COQ 78000 152000 74000
O PERCENTAGE COQ 71% 62% -9%

10 | P a g e CostofQuality
VII- Conclusion
COMPARATIVE ANALYSIS
2 COQ - Continous Data
0 Economic Model of Quality of Conformance Cost
1 T SR No Month 2019 Percentage Defects COGQ COPQ Total Cost Remarks
9 r 1 Assumed 10% 1000 49000 50000
C a 2 Assumed 20% 5000 38000 43000
d 3 Assumed 30% 7000 27000 34000
o
i 4 Feb-19 40% 6000 21000 27000
s t 5 Aug-19 50% 7000 17000 24000
t i 6 Nov-19 60% 10000 15000 25000
o o 7 Jan-19 70% 19000 10000 29000

11 | P a g e CostofQuality
 n 8 Assumed 80% 27000 8000 35000
a 9 Assumed 90% 36000 4000 40000
l 10 Assumed 100% 45600 3400 49000
N SR No Month 2019 Percentage Defects COGQ COPQ Total Cost Remarks
f
o 11 Assumed 10% 34000 40000 74000
n
12 Oct-19 20% 24000 35000 59000
Q T 13 Assumed 30% 14000 31000 45000
u r 14 Assumed 40% 12000 24000 36000
a
a d 15 Jun-19 50% 16000 18000 34000
i
l t
16 Nov-19 60% 21000 16000 37000
i i 17 Assumed 70% 26000 13000 39000
o
t n 18 Assumed 80% 36000 6000 42000
a 19 Jan-19 90% 45000 4000 49000
y l
20 Assumed 100% 53600 3400 57000

12 | P a g e CostofQuality
Appendices
A- Data Collection Format
• Traditional
Graphical Representation

• Non Traditional
Graphical Representation

13 | P a g e CostofQuality