DefectsAn error, flaw, or non-conformance in a product or service that fails to meet a specific Critical-to-Quality (CTQ) requirement or Specification Limit. A single unit or service can contain multiple defects. In Six Sigma, the goal is to define, measure, and eliminate these occurrences. Click term for full definition and mistakes cost money, but most of these costs stay hidden. Calculating the Cost of Poor QualityThe Cost of Poor Quality (COPQ) is the cost incurred because a product or service was not made right the first time: the price of defects, mistakes and inefficiencies. It covers internal and external failure costs. Click term for full definition turns your problem into a business case your sponsor understands. Watch the short video, then work with the toolkit PDF: it explains the method, shows a worked example and gives you a blank template to fill in.
Tool video
The short tool video will appear here.
Cost of Poor Quality in short
- List the failure costs. Collect all internal and external failure costsExternal Failure Costs (EFC) are costs of defects found after the customer receives the product or service, such as warranty claims, complaints, returns and lost sales. Click term for full definition linked to your problem.
- Put a number on each. Use finance data where possible, careful estimates where not.
- Add them up. Calculate the current COPQ per month or per year.
- Apply your goal. Multiply the COPQ by the expected reduction from your SMARTA standard for writing project goals. A SMART goal is Specific, Measurable, Achievable, Relevant and Time-bound, so everyone knows exactly what success looks like and by when. Click term for full definition goal.
- Separate hard and soft savingsReal, measurable benefits that do not directly or immediately impact the P&L statement, or that relate to cost avoidance rather than cost reduction, such as productivity gains or higher satisfaction. Click term for full definition. Only hard savingsTangible, measurable savings that directly and immediately impact the Profit & Loss (P&L) statement, such as less rework, less scrap or lower material costs. Click term for full definition directly hit the P&L; list soft savings separately.
Key points
- COPQ = internal + external failure costs.
- Most quality costs are hidden below the waterline.
- Projected saving = COPQ × expected reduction.
- Keep hard and soft savings apart.