Cost of quality
Cost of quality (COQ) is the total cost a business pays because quality is not perfect—plus the money spent to keep it from being worse. It is split into four categories.
| Category | Paid to… | Examples |
|---|---|---|
| Prevention | …stop defects from occurring | Training, design reviews, process improvement, SPC charts |
| Appraisal | …detect defects before they escape | Incoming inspection, final test, calibration, audits |
| Internal failure | …fix defects found inside the factory | Scrap, rework, re-inspection, downtime |
| External failure | …fix defects that reached the customer | Warranty claims, returns, field repairs, liability |
Prevention and appraisal are conformance costs (you choose to spend them). Internal and external failure are non-conformance costs (the process forces them on you). The classic finding: every dollar added to prevention saves $3–$10 in failure costs.
Worked example
A plant reports the following annual quality costs:
- Prevention: $6,000
- Appraisal: $14,000
- Internal failure: $22,000
- External failure: $8,000
Annual revenue is $400,000.
Interpretation: non-conformance is 60% of COQ—the process is reactive. Shifting $4,000 from appraisal into prevention training is the standard lever; if it halves internal failure, the net saving is roughly $7,000.
Practice problem
A site's COQ data: Prevention $3,000 · Appraisal $9,000 · Internal failure $16,000 · External failure $12,000 · Revenue $500,000. What is COQ as a percent of revenue?
Show answer
Total COQ = 3000+9000+16000+12000 = 40,000. 40,000/500,000 = 0.080 = 8.0%. External failure is 30% of COQ, which is high—the process lets escapes reach customers.
Common exam traps
- Warranty is external failure, not appraisal. Warranty costs are paid after the defect reached the customer.
- Calibration is appraisal. Even if calibration prevents bad measurements, its purpose is detection—it belongs in appraisal.
- Scrap is internal failure. Material thrown away inside the process is internal, even if it never reached a customer.
- Lower total COQ is not always better. Reducing appraisal too far increases escapes; the optimal mix balances all four categories.
- COQ% benchmarks. World-class manufacturers target <3% of revenue. 10–15% is common in less mature operations.
Try 5 free CQE practice questions on this exact topic. Every wrong answer comes with an explanation. No account needed.
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