Cost of Quality: PMP Topics to Learn for the Exam

Cost of Quality

The Cost of Quality is an essential topic for the PMP exam. The Cost of Quality is a management accounting concept that can help you measure the cost of defects or poor quality in your project, product, or service. This information can improve quality and reduce costs in future projects.

The PMBOK® Guide defines the Cost of Quality as: "The cost required by a company to prevent poor quality and implement good quality in products, services, and processes."

You can calculate the cost of poor quality using two approaches: Cost of Conformance and Cost of Non-Conformance.

Cost of Conformance

These are the costs incurred when a product, service, or process does not meet specifications. This may include costs for rework and the use of defective materials. The Cost of Conformance is made up of Preventions costs and Appraisal costs.

Prevention Costs

Prevention is the most effective means of preventing defects. These costs include all those incurred for activities specifically designed to avoid poor product quality from happening in the first place. Preventing mistakes is much less costly than fixing them after they have been made. For example, organizations use statistical process control (SPC), Quality engineering, training, and more advanced techniques like Lean Manufacturing or Six Sigma to help prevent defects from occurring in the first place.

Appraisal Costs

Appraisal costs are also referred to as inspection costs. These costs encompass the cost of inspecting a product before it is shipped to customers. In most cases, an appraisal does not prevent defects from occurring but instead identifies these defects before the customer receives their order. Therefore, appraisal activities should be performed by employees responsible for quality control and designing defect-free products from the beginning.

Cost of Non-Conformance

These are the costs incurred when a product, service, or process does not meet customer requirements. These may include lost sales and customer dissatisfaction due to product or service errors. The cost of non-conformance is made up of internal and external failure costs.

Internal Failure Costs

Internal failure costs result from identifying defects before they are shipped to customers. If flaws are detected internally, it is more likely that the organization will be able to correct them before they are sent to customers. This leads to a reduction in the external failure costs that arise from the production of defective units.

External Failure Costs

A company incurs external failure costs when delivering damaged or defective products to the end customer. These costs include warranty, repairs, and replacements, product recalls, liabilities arising from legal action against a company, and lost sales stemming from a reputation for poor quality. They are not included in an income statement, but they can have an adverse impact on it.

If you haven't already started studying for the PMP exam, consider reading through this infographic to help guide your studies. Please start with the fundamentals and work your way up to more complicated topics as you become familiar with them. The goal here is not just to give you a list of issues but to help you learn methodically from the ground up.