Advanced Cost of Quality Model Generator

Created By : Ir. MD Nursyazwi

Generate a custom Total Cost of Quality model using granular cost data.

How to Use This Generator

This tool lets you build a personalized Total Cost of Quality (TCoQ) model by breaking down your costs into four key categories. Use the sliders to input your data for each field below, and the generator will create a custom model for you.

Understanding the Data Inputs:

Cost of Conformance is the money you spend to prevent or find defects. These costs go up as your quality level increases.

1. Prevention Costs: Money spent to prevent defects from happening in the first place (e.g., training, process design).
   • Fixed: A one-time or base cost (e.g., a software license for a quality management system).
   • Variable: The cost that increases with the level of quality you're targeting (e.g., ongoing training or process-improvement effort per percentage of quality increase).
2. Appraisal Costs: Money spent on inspecting, testing, and auditing to ensure quality (e.g., quality control checks, lab testing).
   • Fixed: A base cost for equipment or an initial audit setup.
   • Variable: The cost that increases as you perform more frequent or thorough inspections.

Cost of Non-Conformance is the money you lose because of defects. These costs decrease as your quality level improves.

1. Internal Failure Costs: Costs from defects found before the product reaches the customer (e.g., rework, scrap, re-testing).
   • Base Cost: The total cost of internal failures if your quality was at 0%. This is the maximum potential cost.
   • Reduction Rate: This determines how quickly these costs decrease as you improve quality. A higher number means costs drop off more steeply.
2. External Failure Costs: Costs from defects found after the product is delivered to the customer (e.g., warranty claims, recalls, lost reputation).
   • Base Cost: The total cost of external failures if your quality was at 0%. This is often much higher than internal failure costs due to reputation damage.
   • Reduction Rate: Determines how quickly these costs decrease with quality improvements.

As you enter your data, the chart will update automatically, showing your specific cost curves and identifying the optimal quality level where your total costs are at their minimum.

Data Input

Enter your company's cost data below to generate your custom model.

Select Currency: US Dollar ($) Euro (€) Japanese Yen (¥) British Pound (£) Australian Dollar (A$) Malaysian Ringgit (RM)

Cost of Conformance

Fixed Prevention Costs

2000

Variable Prevention Costs (per % quality)

20

Fixed Appraisal Costs

1000

Variable Appraisal Costs (per % quality)

15

Cost of Non-Conformance

Internal Failure Base Cost (at 0% quality)

8000

Internal Failure Reduction Rate ($$k_i$$)

0.04

External Failure Base Cost (at 0% quality)

12000

External Failure Reduction Rate ($$k_e$$)

0.06

Enter your data to calculate the optimal quality level.

Your Generated Model: Total Cost of Quality

Individual Cost Breakdown

This section shows how each individual cost component changes with the quality level.

Prevention Costs

Appraisal Costs

Internal Failure Costs

External Failure Costs

The Theoretical Framework of the Advanced TCoQ Model

This model is built upon a fundamental principle of quality management: finding the optimal equilibrium between the costs incurred to achieve quality and the costs of failing to do so. The Total Cost of Quality (TCoQ) is the sum of these two opposing forces, and the primary objective is to identify the quality level (q) at which this total cost is minimized.

The Cost of Conformance represents the investment made to prevent and detect defects. As an organization strives for higher quality, its efforts and spending on prevention and appraisal naturally increase. This relationship is modeled as a linear function, where costs rise in direct proportion to the quality level.

Cost_Conformance(q) = (Fixed_P + Fixed_A) + (Var_P + Var_A) * q

Here, the sum of fixed costs (Fixed_P and Fixed_A) establishes a baseline, and the variable costs (Var_P and Var_A) define the slope of the linear increase as quality (q) improves.

Conversely, the Cost of Non-Conformance delineates the financial consequences of defects. These costs, stemming from both internal and external failures, exhibit an asymptotic relationship with quality. As the quality level approaches 100%, these failure costs decay exponentially towards zero. The rate of this decay is a critical parameter, reflecting the effectiveness of quality improvements in reducing failure costs.

Cost_Internal(q) = Base_I * e^{-k_i * q}

Cost_External(q) = Base_E * e^{-k_e * q}

In these equations, the baseline cost (Base_I and Base_E) represents the maximum potential failure cost at 0% quality. The reduction rate (k_i and k_e) determines the steepness of the exponential decay curve, indicating how quickly costs are reduced with quality improvements.

The Total Cost of Quality is thus a summation of all these components, yielding a curve that initially decreases sharply as failure costs fall, but eventually rises again as the investment in conformance becomes excessively high.

Cost_Total(q) = Cost_Conformance(q) + Cost_Internal(q) + Cost_External(q)

The lowest point on this combined curve represents the theoretical optimal quality level, where total costs are minimized and the investment in quality is most effective.

References

1. Blog post: The Cost of Quality Model
2. Book: Juran's Quality Handbook
3. Book: Total Quality Control, Revised (Fortieth Anniversary Edition)
4. Book: Agile Practice Guide
5. Book: A Guide to the Project Management Body of Knowledge
6. Book: A Guide to The Project Management Body of Knowledge by Project Management Institute 7th Edition
7. Future reference will be added here.

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