Questions related to Cost of Quality and its related topics (cost of conformance and cost of non-conformance) are frequently asked in the PMP certification exam. Not only for the PMP certification exam, this topic is also asked in many other professional certification exams. So it is important to clearly understand this topic.
What is Cost of Quality?
Cost of Quality (COQ) is the cost that needs to be incurred to make a quality product.
COQ is also defined as the sum of all costs incurred to ensure that the project conforms to the requirements.
PMBOK defines Cost of Quality (COQ) as “All costs incurred over the life of the product by investment in preventing non-conformance to requirements, appraisal of the product or service for conformance to requirements, and failure to meet requirements (rework).”
The overall Cost of Quality (COQ) can be divided into two categories
- Cost of Conformance – costs incurred/spent during the project to avoid failures or to ensure quality.
- Cost of Non-Conformance – costs incurred/spent during and after the project because of failures due to poor quality.
Cost of Conformance
Cost of Quality is the money spent or costs incurred during the project to avoid failures or to ensure quality.
There are two categories of Cost of Conformance
- Prevention Costs
- It is the cost to prevent errors and develop quality products.
- Eg: costs related to training, Documentation processes, Equipment etc..
- Appraisal Costs
- It is the costs to assess the quality of the product from time to time. It is the costs related to evaluating, measuring, auditing, and testing the products, deliverables, or services of the specific product.
- Eg: Costs related to Testing, Inspections, etc.
Cost of Non-Conformance
Cost of Non-Conformance is the money spent or costs incurred during or after the project, because of failures due to poor quality.
There are two categories of Cost of Non-Conformance
- Internal Failure Costs
- These are failures that are identified by the project.
- These are costs that occur before the product is released.
- Eg: Rework, Scrap
- External Failure Costs
- These are failures that are identified by the customer.
- These are costs that occur after the product is released to the customer.
- Eg: Warranty work, Liabilities, Lost business etc.
Note: The Cost of Conformance should always be lower than the Cost of Non-Conformance.
If Cost of Conformance if greater than the Cost of Non-conformance, it essentially means, the amount of money you spend to avoid failures/ensure quality is more than the losses you suffer because of failures due to poor quality. This situation makes spending on ensuring quality illogical. So, the Cost of Conformance should always be lower than the Cost of Non-Conformance.