Quality Systems
Spending three times more on finding defects than on preventing them is paying to measure a problem you are not fixing.
— % of turnover
All four categories against annual turnover
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.
Cost of Poor Quality Ledger: Prevention, Appraisal, Internal & External Failure — free, with the formula and a worked example, at Textile School.