Project Quality Management: Cost of Quality

Project managers must give great attention to quality control processes, and for this reason, it's crucial to understand the cost of quality. The cost of quality can vary based on an organization's ability to seek out and stop poor quality from reaching a customer. Project managers need to be able to understand the full scope, which includes delaying delivery in exchange for regulatory directions or repairing something that can't be easily discarded.

Failure to invest in quality has a high price and can affect the project's stakeholders, its team members, and the end-users. As a PMP proficiency holder, you will need to review the COQ, including costs of conformance and nonconformance. This will help you make sure you're spending enough on quality.

What do you understand by the Cost of Quality?

COQ refers to the costs associated with having high-quality deliverables or the consequences that occur after an imperfect one. In other words, it measures the total cost of preventing defects, identifying them, and dealing with them.

Common Mistakes in Determining the Cost of Quality

When it comes to any project, the cost of quality is often confused with the costs of materials. Actually, it has more to do with all the costs associated with quality, including high-quality materials. For instance, investing in high-grade materials and ensuring they have no defects can help prevent any future quality issues.

In addition to the COQ, there are other costs that relate to all parts of a project, including everything from startup through customer service - not just the end of the project.

Significance Of Cost Of Quality

It's a good idea to calculate the cost of quality (COQ) to help you maintain a balance between short-term and long-term costs. This includes calculating the costs of conformance and the costs of nonconformance.

The cost of conformance is basically the level at which you want to supply quality by preventing defects and incurring appraisal costs. The cost of non-conformance covers the cost of failures outside the project - such as product recalls - as well as failures inside the project (internal failures) that prevent quality. When both are added together, they make up your total COQ, which potential PMP holders would need to know.

COQ = Cost of Conformance + Cost of Nonconformance (or failure costs) Recognizing the true cost of quality will help you gauge how much you should spend to secure quality during and after your project. You'll need to do this to estimate costs and set a budget accordingly. Let's take a closer look at the costs of conformance versus nonconformance.

Cost of Conformance

The cost of conformance is anything you have to spend to prevent defects and meet project quality requirements.

Prevention costs are a type of conformance cost that involves quality assurance. Preventing poor quality from happening can involve acquiring and maintaining equipment, planning and training your staff, and keeping good documentation. It can also include having the right team or people in general, doing good research, etc.

Appraisal costs are incurred when a project does not meet compliance standards or specifications. It can involve catching errors when they happen, preventing them from happening in the first place, or correcting any such mistakes that may have already happened. Appraisal costs may be incurred during inspections, quality control activities, and field testing.

The name itself says it all: complying with the established specification will cost you money. However, it's usually much cheaper than trying to fix them afterward.

The ratio of preventing costly mistakes rather than just reviewing them is what the project manager emphasizes. Preventing failures upfront means you'll incur less cost in fixing them, and the more prevention you invest in early on, the cheaper it will be.

Cost of Nonconformance

Fixing, rewriting, or refunding faulty deliverables is a costly activity. A project with poor quality will cost you the time of your staff and the funds that it would otherwise have been able to earn. When you don't follow the requirements for quality, nonconformance costs will skyrocket.

The two types of nonconformance costs are internal failure costs and external failure costs.

Failures can occur at any point in your process, and they'll create obstacles in the future. Internal failures are most common when you catch defects before they reach the client or user. These failures include things like

• Repairing deliverables defects

• Reworking components or deliverables

• Wasted resources like time, money, etc.

• Scrapping all the deliverables and their components

Costing can best be understood in terms of delivering something on time. External failure costs are the cost of fixing mistakes after your product is delivered to the client or end user. Usually, it is the client or end-user who identifies these defects, which are done by somebody outside of your project team. Some examples to know

• Processing refunds, offering warranties and recalling products

• Offering customer support and solving complaints

• Not meeting regulatory requirements or compliances

• Losing reputation and future businesses

You can't afford to produce low-quality work. Not only does it cost you time and energy, but the poor quality will also increase the costs of noncompliance. Unmatched standards mean lower costs of noncompliance. Achieving world-class standards can help reduce it even more.

Good project management involves assessing the potential costs of quality failures. External failures are especially tough to predict, and they tend to have the most significant impact. Understanding your risks and preventing costly mistakes is key.

Prevention Costs

When it comes to product quality, prevention is better than cure. Prevention can include many different things such as activities that are specifically designed to curb poor quality before it has a chance to happen or work on eliminating risk factors that may contribute to a bad outcome. The cost of preventing a problem from happening is much less than the price you'll pay for finding and fixing the problem once something goes wrong.

Prevention is necessary for activities that have the purpose to lower the number of mistakes. Organizations employ many techniques to prevent mistakes and errors, including statistical process control, quality engineering, and training.

Appraisal Costs

A few costs that are related to appraisals include inspection, appraisal, and testing. This comes into play with defective products -- if you examine them beforehand, the defective products won't reach customers. But performing these activities alone does not guarantee defect-free products. The old idea of a team of inspectors is outdated -- modern managers have realized that inspections need to take place throughout the process, not just at the end.

A more effective way of providing quality control is to have your employees responsible for their own quality, designing the product before it's manufactured, to be defect-free. This strategy ensures high-quality designs from the start, without relying on inspections to identify any imperfections.

Conclusion

Understanding the value of investing in prevention early on is important to avoid expensive, time-consuming expenditures later. It's also helpful to understand the cost of quality and why it's so crucial to your project. Calculating the cost of quality is one way to make sure you optimize your entire project budget.

Calculating the COQ is relatively simple. You can do it by adding all the costs of conformance and all the costs of non-conformance together. It's optimized when the sum of conformance and non-conformance costs is as small as possible.