A Simple Model for Identifying Costs of Quality

Customer satisfaction drives quality improvement and innovation initiatives for many organizations. Sources of data for such initiatives come from both internal processes as well as the customer. Costs of quality (COQ), with emphasis on failure costs, have been used for managing quality and prioritizing actions for decades because of their appeal to top management. These costs are divided into two groups: conformance and nonconformance. Conformance costs can belong to either the prevention or appraisal categories while nonconformance or failure costs can be either internal or external. External failure costs result from the negative experience customers have with products and services. Typical COQ programs include readily identifiable costs such as product returns or scrap. However, many hidden costs can be challenging to correctly identify or may seem to belong to more than one category. In any case, failure to identify a given cost as a quality cost or incorrectly categorizing it may result in misleading decision on actions to improve quality. In this paper, a model will be proposed for correctly categorizing costs of quality. If the cost does not belong to any category, it will be identified as such (not a quality cost). The proposed model will be used as a teaching tool in a senior-level quality improvement course at Ohio University. The model will be tested with cost examples using the following questions: Can students using this model correctly identify whether a given cost is a quality cost? and (2) Do students using the model achieve significantly better results in correctly categorizing COQ than the traditional method for teaching the subject? The same set of costs will be used to answer these questions.