E-Training

session
WHAT IS COST OF POOR QUALITY?
History
Around 1950, cost of quality was perceived as the cost of running the quality
assurance department plus scrap, rework, testing and warranty costs. Quality cost, in
big way, featured in 1957 in a documentary film `Right first time developed by British
Productivity Council. In the film, cost of quality was broken down into cost of failure,
cost of appraisal and cost of prevention.

In present days, it is widely accepted that quality costs are incurred in

Design, implementation, operation & maintenance of the organizations QMS.

Organizational resources committed to process of organizational improvement.
Product and service failures.
Non-value added activities and wastage in various forms.

Reasons for Cost of Quality

Due to excess production / operation costs arising from the inability to get RFT.
Excessive inspection, appraisal, auditing, guarantee & warranty undertakings.
Known non-value added activities in the organization.
Unknown hidden costs.
Unsatisfactory resource utilization leading to higher costs.
E-Training
session
WHAT IS COST OF POOR QUALITY?
Definitions
Cost of Poor Quality is defined as expenditure incurred, in defect prevention, appraisal and
losses due to internal as well as external failures, by manufacturer, by the community
associated with the product / service quality.

Total Quality Management is defined as A management philosophy embracing all activities

through which the needs and expectations of the customer and the community, and the
objectives of the organization are satisfied in most efficient and cost effective way by
maximizing the potential of all employees in continuing drive for improvement. Hence
arresting all the possible costs is imperative. In normal organization, cost of poor quality
ranges between 10 ~ 25% of total sales.

Benefits of tracking Cost of Quality

Promoting Quality as a business parameter : Factual cost attracts initiation of
actions towards organizational improvement.
Giving rise to performance measurement : provides a basis for comparison with
similar industries or competitor.
This can become the basis for budgeting and ultimately tool for cost control.
Costs provide clear cut directions for selecting the most profitable improvement
projects.