What is the cost of poor quality?

Everything a plant spends because work was not done right the first time: scrap, rework, sorting, re-inspection, returns, warranty claims, chargebacks and the labor behind them. It is the internal and external failure costs.

What are the four categories of the cost of quality?

Prevention costs, such as training and error-proofing; appraisal costs, such as inspection and testing; internal failure costs, such as scrap and rework; and external failure costs, such as returns and warranty claims.

What is the difference between COPQ and the cost of quality?

The cost of poor quality is the two failure categories. The cost of quality adds prevention and appraisal, the money spent to avoid and find defects. Some companies use the terms loosely, so say which one you report.

How do you calculate COPQ as a percentage of sales?

Add the internal and external failure costs for a period and divide by sales for the same period, times 100. $56,000 of failure cost on $2,000,000 of sales is 2.8%.

Where does the data for a COPQ worksheet come from?

Scrap and rework reports, timesheets for rework and inspection, credit notes and warranty records, freight invoices and the quality team's own costs. Use the rates your Finance team uses for labor and parts.

Free template

Cost of poor quality (COPQ) worksheet

The cost of poor quality (COPQ) is what a plant spends because work was not done right the first time: scrap, rework, sorting, returns, warranty claims and the labor behind them. It is usually worked out with the four categories of the cost of quality: prevention (stopping defects before they happen), appraisal (checking for them), internal failure (defects found before the customer gets the product) and external failure (defects the customer found). The two failure categories are the cost of poor quality; all four together are the total cost of quality. Both are tracked as a share of sales. Page 1 of this template lists typical cost lines in each category with space for how each was worked out and the cost. Page 2 has the summary by category as a share of the total and of sales, a table of the biggest failure costs with actions, and a worked example. The Excel version works out each line as quantity × cost per unit plus any other cost, totals the categories, shows COPQ and the cost of quality as a share of sales with a chart, and has a month-by-month trend sheet.

Free to use: print it, copy it and edit it for your team. Enter your name and work email once to download.

Page 1 of the COPQ worksheet: fields for site, period, sales and preparer, and tables for prevention, appraisal, internal failure and external failure with typical cost lines, how each was worked out and the cost, each with a total. — Prevention costsAppraisal costsInternal failure costsExternal failure costsCOPQ as % of salesBiggest failure costsMonthly trend

When to use it

When to use a COPQ worksheet

To put a dollar figure on quality problems that are reported only as counts.
When deciding where to spend on prevention, such as error-proofing or training.
To build the business case for a quality improvement project.
To track whether quality costs are falling month by month.

How to fill it in

1
Pick the period
A month or a year, and the sales for the same period.
2
Collect failure costs first
Scrap reports, rework hours, sorting, credit notes, warranty claims, extra freight. These are usually the biggest lines and the easiest to find.
3
Add appraisal and prevention
Inspection and test hours, lab costs, calibration, audits; quality planning, training, supplier development, error-proofing.
4
Use Finance's rates
Scrap = parts × cost per part. Rework = hours × loaded labor rate. Write down how each line was worked out.
5
Total and compare
Category totals, COPQ (internal + external failure) and cost of quality, as a share of sales.
6
Go after the biggest failure cost
List the largest failure lines with an owner and an action, and repeat the worksheet next period to see the change.

A filled-in example

Illustrative, not a benchmark

An example: one month in a plant with $2,000,000 of sales (illustrative numbers).

Prevention $6,000, appraisal $18,000, internal failure $42,000, external failure $14,000.
Cost of quality = $80,000, 4.0% of sales.
Cost of poor quality = $42,000 + $14,000 = $56,000, 2.8% of sales and 70% of the cost of quality.
The biggest single line was scrap on one part family, $10,200 in the month.

The team started a project on the scrap line first and planned to repeat the worksheet each month to see whether failure costs fell and whether spending more on prevention was paying for itself.

Common mistakes

Counting only scrap
Rework, sorting, returns, warranty and the engineering time spent on failures often add up to more than the scrap itself.
Changing what is counted
If the lines change from one period to the next, the trend is meaningless. Keep the same lines and the same rates.
Guessing without saying so
Some lines have to be estimated. Write down how, so the number can be checked and improved.
Cutting appraisal to cut cost
Less inspection with the same process usually moves cost from appraisal to external failure, which is the most expensive place for it.

Download the template

Free to use: print it, copy it and edit it for your team. Enter your name and work email once to download.

Run this template in LeanSuite

In LeanSuite operators log defects at the line, the QA Matrix applies your standard costs to turn defect counts into dollars and ranks them in a live COPQ Pareto, and in-process scrap sits next to warranty claims and customer returns on one dashboard.

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