USING THE COST OF POOR QUALITY (COPQ) TO CALCULATE THE ROI ON COACHING

USING THE COST OF POOR QUALITY (COPQ) TO CALCULATE THE ROI ON COACHING

The Cost of Poor Quality (COPQ) is the costs that would disappear if systems, processes, and products were perfect. Every time work is redone, the cost of quality increases.

COPQ allows an organization to determine the extent to which its resources are used for activities that prevent poor quality, that appraise the quality of the organization’s products or services, and that result from internal and external failures. Having such information allows an organization to determine the potential savings to be gained by implementing process improvements.

COPQ could therefore be used to calculate the Return on Investment ROI of coaching and/or mentoring where it supports the development of people, processes and performance to address these failures.

There are four categories of Quality Costs to consider in COPQ. These are as follows:

Internal Failure Costs
External Failure Costs
Appraisal Costs
Prevention Costs


INTERNAL FAILURE COSTS

The first type of COPQ is Internal Failure Costs. These costs are incurred to remove defects discovered before the product or service is delivered to the customer. These costs occur when the results of a work fail to reach design quality standards and are detected before they are transferred to the customer.

Internal Failure Costs can include:

Waste: Performance of unnecessary work or holding of stock as a result of errors, poor organization, or communication
Scrap: These are defective products or material that cannot be repaired, used, or sold
Rework or rectification: It refers to correction of defective material or errors
Failure analysis: It is an activity required to establish the causes of internal product or service failure


EXTERNAL FAILURE COSTS

The second category of COPQ is External Failure Costs. External Failure Costs are incurred to remedy defects discovered by customers. These costs occur when products or services that fail to reach design quality standards are not detected until after they were transferred to the customer.

External Failure Costs can include

Repairs and Servicing: The sub category relates to both returned products and those sold in the field
Warranty Claims: These are the failed products that are replaced or services that are re-performed; under a guarantee or warranty
Complaints: It refers to all work and costs associated with handling and servicing customers’ complaints
Returns: It relates to handling and investigation of rejected or recalled products, including transport costs


APPRAISAL COSTS

The third category of COPQ is Appraisal Costs. Appraisal costs are associated with measuring and monitoring activities related to quality. These costs are associated with the suppliers’ and customers’ evaluation of purchased materials, processes, products and services to ensure that they conform to specifications.

Appraisal costs can include:

Verification: It refers to checking of incoming material, process setup, and products against agreed specifications
Quality audits: The activity assures that the quality system is functioning correctly
Supplier rating: It is an assessment and approval of vendors of products and services


PREVENTION COSTS

The fourth category of COPQ is Prevention Costs. Prevention costs are incurred to prevent or avoid quality problems. These costs are associated with the design, implementation, and maintenance of the quality management system. They are planned and incurred before the actual operation.

Prevention Costs can include:

Product or Service Requirements: These are the costs incurred related to the establishment of specifications for incoming materials, processes, finished products, and services
Quality Planning: The expenses incurred for the creation of plans for quality, operations, production, and inspection
Quality Assurance: The cost related to creation and maintenance of the quality mechanism
Training: The costs associated with development, preparation, and maintenance of programs


COPQ CALCULATIONS

The quality costs, under COPQ, are calculated to assign a value to some defects produced by a process. This may look at direct raw material cost, people’s time cost, indirect costs (heat, light electricity), forgone profit. If you sell tins of beans a compelling metric is how many extra tins of beans you need to sell to fund the waste.

USEFUL REFERENCE

COPQ: What Does Your Inefficient Process Cost You?
https://blog.masterofproject.com/copq/