Cost of Poor Quality

Content

Define
Cost of Poor
Quality

Measure
COPQ Baseline

Analyze
Critical Factors

Improve
Critical Factors

Control
Improvement
Plan

Define
Cost of Quality (COQ)
Joseph Juran - first discussed the cost of quality analysis in 1951

is a means to quantify the total cost of:

Quality-related efforts (Prevention + Appraisal)
Deficiencies (Failure)

Define
Categories of Cost of Quality (COQ)

Define
Is Cost related to
Prevention of Non-

PREVENTION

Conformance?

Is Cost related to

APPRAISAL

Inspection or testing?

INTERNAL FAILURE
Is Cost related to

Is Failure identified

Failure?

internally?

EXTERNALFAILURE

Define

Focus on Cost of Poor Quality

Measure Baseline
CurrentStatusof
CostofPoorQualityinDescon

Procedure available but is

it implemented properly?

NO.!!

Measure Baseline
CurrentStatus
of
CostofQualityinDescon
DesconCOQStats
(inPakRs.)

Duration
JanOct,2015

AppraisalCost*
35,307,150

FailureCost*
1,380,477

*DataisforNKB,LMW,KMW,HMW,Borouge&Baraka

(inNumbers)

ProjectrelatedCARs

230*

(JanOct,2015)
*DataisforNKB,LMW,KMW,HMW,Borouge&Baraka

Measure Baseline
IsCOPQbeingmeasuredinDescon?
Borouge PO Flare Gas Recovery Project (P# 1353)

Inspection related CARs:

105 #s (66 #s external)

Inspection Performance:

96% (200 #s of RITs being rejected)

Failure Cost:

AED 1,270 (Rs. 36,470)

Is above Failure cost depicting the right picture?

NO.!!

Measure Baseline
In order to assess the right picture of Reworks / Repairs /
Nonconformances, we must measure COPQ

AretheiranyotherbenefitsofmeasuringCOPQ?

Yes.!!

Why measure COPQ?

COPQ direct contribution in profit
COPQ - identify quality improvement candidates;
Identify all failures costs
Detect root causes and eliminate them
COPQ - measure of the success of projects
COPQ - cost data for motivational purpose

Why measure COPQ?

In 2007, U.S. construction industry expenditures were $1.246 trillion and out
of these, $62 billion (5%) were wasted on the direct cost of rework alone.
(Bureau of Economic Analysis, 2009)

Annual turnover of the Australian construction industry was estimated at

$A32 billion per annum whereas the cost of rework was approximated at
$A4 billion per annum.
(Construction Expert Group 1993)

In a publication entitled Managing Construction Quality, an average contractor

is estimated to spend between 5-10 percent of the project cost doing things
wrong and rectifying them.
(Construction Industry Development Board (CIBD))

Why measure COPQ?

Welding

Test

Welding

Test

Welded Pipe
Spool

Site Space
Repair

Repair

The Hidden Project

Fix

Site Space

Value Added
Non-Value Added

Fix

Site Space

Philip R. Thomas, Competitiveness

Through Total Cycle Time. McGraw-Hill
(1990)

Why measure COPQ?

Measurement Started What next?

Leakage Identified Now FIX it!

Analyze critical factors

High repair rate
Higher rejection rate at receiving inspection
(Y)

(X = Rs. 36,470/-)

COPQ
measured
correctly

Analyze critical factors

Analyze critical factors

(H&S Motor Company, USA)

(in US $)

Analyze critical factors

Taking the revision cloud too seriously

Red-bull reinforced concrete

Analyze critical factors

Light pole Argument

Right First Time

Improve critical factors

Only measuring COPQ will not resolve the problems of a company; Instead,
it will only give a view on what activities that need to be done in order to
improve the quality level of the company
All quality improvement occurs on a project-by-project basis
- Juran

Improve critical factors

Senior Management support is critical for implementing COPQ program

Improve critical factors

Determine level of detail for COPQ measurement
Start with Internal and External Failure costs only

Select any pilot project for measurement of COPQ

Selection of project (preferably from start)
Formation of COPQ team (preferably QA&QC + Planning)
Mandate is given to COPQ team (for accurate measurement)
Monthly reporting from COPQ team (Areas of improvement)

Control improvement plans

Once COPQ team identify improvement area;
Perform root cause analysis and suggest corrective action
Investment in Appraisal cost or Prevention cost
Results will not be over-night

Conclusion
The goal of using COQ is to increase prevention activities in
order to eliminate internal and external failures and to reduce
appraisal activities.