Cost of Quality Decreases as Quality of Product Increases

Author: Charlie Gragg Process Quality Expert

The Cost of Quality decreases as the Quality of Product increases.

Let me repeat.

The Cost of Quality decreases as the Quality of Product increases.

Definitions of “Cost of Quality” tend to differ.

The Total Quality Management definition is:

The “cost of quality” isn’t the price of creating a quality product or service.  It’s the cost of NOT creating a quality product or service.”

To lay the groundwork for this article I will use the following definitions:

“Cost of Good Quality”:

The cost of producing a “Quality Product” is the cost incurred from activities to plan, develop, deliver and maintain a product that is reliable and exceeds User Needs and Expectations with no rework required.  Essentially achieving “First Pass” success of all processes.

“Cost of Poor Quality”:

The cost incurred by not producing a “Quality Product”.  In other words, the cost of “Rework Activities” Pre and Post Launch.

“Cost of Quality”:

“Cost of Good Quality” + Cost of Poor Quality”

As you see, my definition of “Cost of Quality” is different than the TQM definition but I believe (mine) lessens possible misunderstanding.

It is equally as important to measure Good and Poor Quality.  Measuring both the “Cost of Good Quality” and the “Cost of Poor Quality” provides metric benchmarks for continuously improving an organizations processes.  Continuous improvement is necessary with the realization that what may be a perfect process today may in fact not be a perfect process tomorrow.  Conversely, what may not be a prefect process today may in fact become a perfect process tomorrow.

In the Medical Device industry as in all industries, technology innovation results in an ever changing process landscape.  I propose that organizational processes are never as good as they can be.  Continuous improvement is necessary to both maintain market share and to increase market share.

Measuring the full range of Cost of Quality metrics provides a sound foundation for continuous improvement and should be a long term organizational goal.  That being said, starting small, measuring areas that will produce the biggest improvements for the least cost will provide noticeable reductions in cost to market.  Identifying the metric areas to improve is the initial task.

The following areas lend themselves to quantify Cost of Quality.  The first two areas measure both Good and Poor Quality while the last two areas measure only Poor Quality.

  • Four Major Areas to measure
    • Prevention
      • Risk Management
      • Meetings
      • Documentation Workflow(s)
      • Training
      • Verification
      • Validation
      • Change Management
      • Supplier Certification(s)
      • Incoming Inspection (s)
    • Appraisal
      • Reviews
      • Assessments
      • DFH Documentation
      • DHF Audits
      • Supplier Audits
    • Internal Failure
      • Regression Activities (Pre-Release)
      • Exception Reports
      • CAPA’s
        • Investigations
        • Corrective Actions
        • Preventative Actions
        • Effectiveness Checks
      • External Failure
        • Regression Activities (Post-Market)
        • Exception Reports
        • CAPA’s
          • Investigations
          • Corrective Actions
          • Preventative Actions
          • Effectiveness Checks
        • Defect Correction of On-Market Products

Let’s get on the right track…

If meaningful Cost of Quality metrics are not well documented or available Continuous Improvement effort activities are still easily initiated and maintained. The following records can provide possible starting points for organizations in this situation.

  • Internal Audits
  • External Audits
  • Corrective Actions
  • Preventative Actions
  • MDR’s
  • Lessons Learned
  • Code Reviews
  • Verification Reports
  • Validation Reports

Calculating the Cost of Quality

  • Define the activities
  • Identify the activity action takers
  • Determine the action taker cost rates
  • Calculate the action takers activity time spent per activity
  • Calculate the per activity total cost
  • Calculate the total cost per reporting period

The following is an actual example of calculating the Cost of Quality for a Requirement Change during initial Requirements Analysis.

Description # Actors Hours Grade Rate/Hr. Activity Cost
Requirement Correction  
     Requirement Analysis 1 1.0 E-12 $30  $30.00
     Requirement Change 1 1.0 IL $40  $40.00
Total Activity 2 1.5      $70.00

The following is an actual example of the same Requirement Change as a result of a MRD.

Description # Actors Hours Grade Rate/Hr. Activity Cost
Requirement Correction  
Exception Report 1 0.5 E-14 $50   $25.00
Investigation 1 4.0 E-12 $30 $120.00
CAPA 2 5.0 E-12 $30 $150.00
Requirement Correction          
     Requirement Analysis 1 1.0 E-12 $30   $30.00
     Requirement Change 1 1.0 IL $40   $40.00
     Design Change 1 1.0 DV $90   $90.00
     Code Change 1 1.0 DV $90   $90.00
     Code Review 3 0.25 DV $90   $25.00
     Unit Test 1 0.5 DV $90   $45.00
     Engineering Test 1 0.5 DV $90   $45.00
     Verification 1 0.5 E-12 $30   $25.00
     SCR Update 1 0.25 CL $20     $5.00
     Validation 1 0.5 IL $40   $20.00
     Total Activity 16 16.0     $697.50

The above figures are based upon an actual change.  As you can see, rework is indeed expensive.  This only includes the calculated monetary cost and does not include:

  • Time
  • Customer dissatisfaction
  • Possible loss of market share
  • Possible internal organizational frustration

Organizations that utilize Cost of Quality Metrics over time:

  • Identify improvement areas based upon empirical cost/benefit data
  • Facilitate targeted quality improvements
  • Realize bottom line savings and increased customer satisfaction

Cost of Quality efforts provide only one of the available techniques available to aide in decreasing Defect Reduction and increasing Customer Satisfaction.  Organizations that employ multiple techniques for continuous improvement move to the forefront ahead of organizations content with the “status quo”.

Employing one technique is a start; employing multiple techniques is a winning strategy for “Continuous Improvement”.

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