Using Cost of Quality
The total CoQ is the sum of all the costs listed above:
Total Cost of Quality = External Failure + Internal Failure + Appraisal + Prevention Costs
Let’s see what this means with a simplified example. Suppose, you have the following costs associated with developing a product:
- Training: $25,000
- Usability Analysis: $12,000
- Testing and Audits: $10,000
- Regression testing: $2,000
The total CoQ is the sum of all the costs listed above: $49,000.
Suppose after the product is launched, you rake in a profit of $10,000 a month and you spend $2,000 on technical support calls. The total CoQ increases by $2,000 every month. Now, if there is a product recall, then that would drastically add to the total cost of quality. External Failure costs directly result in an increase in the LCC of the product. Therefore, CoQ is an important consideration when you apply LCC.
Ultimately, a high total cost of quality negatively impacts your break-even point.