Cost of Poor Quality Ledger: Prevention, Appraisal, Internal & External Failure

The formula

This is the expression the tool evaluates. Every term is named underneath, with the unit it must be supplied in.

How the result is derived

Step by step, from the values you type to the figure on screen.

1. The 6 inputs are read from the form on every keystroke: Prevention, Appraisal, Internal Failure, External Failure, Annual Turnover and Prevention Leverage.
2. Each value is checked against the accepted range in the input table below. A value outside its range stops the calculation rather than producing a misleading figure — the results blank out and a message appears.
3. The validated values are substituted into the expression above, which resolves Cost of Poor Quality together with every supporting figure in one pass — no value is carried over from a previous entry.
4. The supporting outputs — Failure Share of Quality Spend, Appraisal to Prevention, Prevention to Failure, External to Internal Failure, Total Cost of Poor Quality, Prevention Shortfall at this Leverage, Net Saving from Rebalancing and Cost of Poor Quality After Rebalancing — come from the same pass, so they always describe the same case as the headline figure.
5. Results are rounded for display only. The full-precision value is used throughout the chain, so reading a rounded intermediate figure back into the tool by hand can shift the last digit.

What each input means

Where to read each value on the floor, the unit it must be in, and the range the tool accepts.

What the tool returns

The headline figure and every supporting value it is built from.

Worked example

Substituting

Two thirds of the quality budget is being spent on failures that already happened, and appraisal outspends prevention three and a half to one. The total of 6.08% of turnover is roughly the plant net margin - which is the argument that lands with a board, where a scrap percentage does not.

How to use it

1. Work through the input groups in order — Cost of Conformance and Cost of Non-Conformance. The defaults are a realistic case, so you can change one value at a time and watch what moves.
2. There is no calculate button. Every figure recalculates as you type or drag, which is what makes this usable for a what-if sweep rather than a single answer.
3. Read Cost of Poor Quality in the dark results panel — that is the headline figure, expressed in % of turnover.
4. Check the supporting rows underneath (Failure Share of Quality Spend, Appraisal to Prevention, Prevention to Failure, External to Internal Failure, Total Cost of Poor Quality, Prevention Shortfall at this Leverage, Net Saving from Rebalancing and Cost of Poor Quality After Rebalancing) before acting on the headline — they are where an implausible input usually shows itself first.
5. Reset to defaults returns every field to the reference case, which is the quickest way to check whether a surprising result came from the tool or from an input you had changed earlier.

Where this is used

• Process planning — establishing Cost of Poor Quality before a trial is booked, so machine time and material in Quality Systems, Traceability, Utilities & Factory Decisions are committed against a calculated figure rather than an estimate.
• Costing and quotation — Cost of Poor Quality is an input to the cost sheet, and quoting from a worked number rather than a remembered one is what keeps a margin intact.
• Troubleshooting — when the floor result drifts from plan, entering the measured values (starting with Prevention) shows how much of the gap in Cost of Poor Quality each variable explains.
• Teaching and study — the accepted ranges bracket normal Quality Systems, Traceability, Utilities & Factory Decisions practice, so moving one variable at a time shows the shape of the relationship rather than a single answer.

Reading the result

Typical bands and what each one is telling you.

Assumptions and limits

• Most cost of poor quality is not in the general ledger. Scrap, claims and laboratory cost are usually traceable; rework labour, lost capacity at the constraint, reprocessed batches and management time spent on complaints usually are not, and they are commonly larger than the visible half - so a first calculation almost always understates the total. Hold the estimation method constant rather than refining it, because the trend carries the information. The prevention leverage is empirical and plant-specific; it falls as prevention matures, and entering a leverage near one correctly reports that no rebalancing saving remains. The rebalancing figure is an upper bound that assumes prevention spend can be deployed against the failure causes that actually dominate, which requires the failure cost to have been analysed by cause first. External failure excludes lost future business, which no ledger captures and which is often the largest term of all.
• Every input is bounded to the range normal practice occupies (Prevention 0 to 100000000 /yr, Appraisal 0 to 100000000 /yr and Internal Failure 0 to 100000000 /yr, and so on for the rest). Those bounds are guard rails against typing errors, not a claim that the formula fails one unit outside them.
• The calculation is deterministic: the same inputs always give the same result. It carries no allowance for machine condition, operator skill, ambient conditions or lot-to-lot material variation unless an input above explicitly represents one.
• Nothing is sent anywhere. The maths runs in your browser, so the numbers you type never leave the page.

Standards and further reading

• ISO 9004 - Quality management, quality of an organization, guidance to achieve sustained success, which frames the cost categories.
• ISO 9001 clause 8.7 and 10.2 - nonconforming output and corrective action, the processes these costs arise from.
• BS 6143-2 - Guide to the economics of quality, prevention appraisal failure model.
• ASQ Quality Costs Committee, the origin of the four-category split used here.

Questions people ask