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If you consider all the different COQ's:
- Internal Found by Project: Rework, Scrap
- External Found by the Client: Liabilities, Lost Business, Warranty Work
- Preventive Costs: Training, Equipment
- Appraisal Costs: Testing, Inspections
Conformance costs are measures taken during planning to ensure we do not get to the non-conformance point so you much be very concerned if you reach the NC point as rework means more money, more time - Scrap means, lost money and more time if you are doing Just In Time (JIT) procurement and there is lots of scrap and you ran out of material then this will be an issues and the list goes one.
If the COQ was not monitored properly, it can drill the project down causing increase in cost, delays and client dissatisfaction.
Although i agree with Rami - i do not understand the question well enough. Are you talking about quality in general or the concept of COQ?
Anything we do in life we must look at the concept of BCR - Benefit to Cost Ratio. So to build on what Rami said - the question is how much investment are you willing to put in order to reduce the overall COQ and increase the benefit --- or increase the BCR.
In other words, if we spend 1000$ on preventive work (quality and other areas) - basically to decrease Non-Conformance we should be able to save more than $1000 in cost of NC
Cost of Quality includes all costs required to provide a quality product to end user. Cost of conformance is all cost spent on quality assurance and control. Cost of Non-conformance includes the cost if product doesn't meet the quality eg. rework, scrap, lack of trust to business etc.
The interesting point is to reduce the cost of non conformance by cost of conformance in a balanced way.
Proper analysis should be done for cost of quality because it can increase the cost of end product beyond the expectation of customers.
In layman's language, if you need a certain quality to deliver it will cost you. It is your choice if you want to pay for the poor quality or pay much lesser in prevention of poor quality. It actually would be a combination of both kinds of costs. Naturally if you invest more in good quality, you will have to spend much lesser in losses due to poor quality. It would not be wise only to invest in good quality, because without inspecting the product for quality, there still remains a chance a single defect or error will get through and will tarnish your reputation for good.
On another level, quality is closely related with risk. Once we talk about cost of quality, there is a risk of poor quality (cost of non-conformance), to avoid which, we invest in good quality (cost of conformance)
It is very important evaluating the COQ in a project because it has a big impact on the overall project. As Suhail mentioned, COQ is closely related with risks because in the risk management process you must evaluate the risks of non conformity and their associated costs and find mitigation actions (preventive actions for example) and their associated costs.
This evaluation is very critical and can bring to the success or the failure of the overall project.
1. It is important not to confuse "quality" with "Grade" as we continue to discuss this topic.
2. I am curious - most of the answers here are close to a text book answer - have anyone actually did an actual exercise on a project to determine COQ? I will be the first to say - formally NO. However, I have done COS (Cost of Safety) exercise for a mega project.
As we are not manufacturing anything, cost of rejection of material is not generally included. If a material is rejected, it is replaced at manufacturer cost. Cost of rework is very difficult to analyze in projects; also no-one likes it whether it exists or not (generally due to employee mistake).
I will write about what I made from years in multiple organizations around the world belonging to multiple domains. Take into account that you have to understand that quality is componed by assurance and control and as Mounir wrote not be confused with grade. 1-you must define what quality means for the organization because it is an strategical matter. 2-because it is an strategical matter (mainly to devide the organizations into proactive onces and reactive once) you have to make an enterprise analysis activity to understand your current organizational architecture as-is and determine the to-be with focus on quality. 3-after that you can define all you need to implement quality mainly by defining if a business unit has to be created. 4-if you crate a business unit then you will have a cost associated to it and then you have to define how the cost will be splitted between the organizational business units so it will impact your project cost. If you do not have a special business unit related to quality and you will include quality inside your project you have to determine a plan to find what/who/how/when and how much it cost to implement quality inside your project. Cost of Quality is related to quality assurance mainly not to quality control while this could change according the organization.
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