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Sort quality-related costs into the prevention, appraisal and failure categories, total them, and see where the money goes and what the profile says about the quality system.
ON THE EXAM · CMQ/OE IV.A.5 · FREE · NOTHING YOU TYPE LEAVES YOUR BROWSER
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The PAF model
The prevention-appraisal-failure model, associated with Armand Feigenbaum and used throughout Juran's work, sorts every quality-related cost into four categories:
- Prevention: work that stops defects being made. Quality planning, training, design reviews, capability studies, error-proofing, supplier qualification and development.
- Appraisal: work that finds defects by checking. Incoming, in-process and final inspection and test, calibration of measuring equipment, product audits.
- Internal failure: defects found before the customer has the product. Scrap, rework, re-inspection and retest after a failure, downgrading, failure analysis, downtime caused by quality problems.
- External failure: defects the customer found. Warranty, returns, complaint handling, field repair, recalls, penalties and lost goodwill.
Prevention plus appraisal is the cost of good quality; the two failure categories are the cost of poor quality.
Categorizing items correctly
The category depends on purpose, not on who does the work. Inspection is appraisal, but re-inspecting a lot that already failed is part of that failure. A supplier audit that checks conformance is appraisal; one that qualifies or develops a new supplier is closer to prevention. Training on the quality system is prevention; training a new hire on a job is usually an operating cost, not a quality cost. Write the rules down and apply them the same way every period, or the trend means nothing.
Reading the result
An immature profile is dominated by failure costs, with prevention a small slice. The classic argument is that money moved into prevention reduces failure cost by more than it adds, so total COQ falls. The older economic model put the lowest total cost short of perfect quality; the modern view is that the optimum moves toward zero defects as prevention becomes cheaper and failures more expensive. Figures such as 15 to 25 percent of sales are often quoted for the cost of poor quality, but they are estimates. Measured COQ is usually understated, because hidden costs such as lost sales and engineering time are hard to capture.
On the CMQ/OE exam
Expect questions that give a list of costs and ask for the category of an item or the total of a category, and questions on why COQ is reported in dollars and as a percent of sales: so management sees it in the language of the business.