Resource Centers

Cost of Quality – Approximation Values

What are approximation values?

Approximation Values represent a standardized way (or formula) to approximate the cost of a quality-related event or incident. Some
Approximation Values are based on a prorated amount of the fixed operating budget for that activity or task. For other activities, values are calculated on an incident-basis.

A major cause of failure of Cost of Quality Programs is the time and effort that is expended to fully capture and quantify the cost of quality, especially the costs associated with a substandard incident.
The use of Approximation Values simplifies Cost of Quality calculations and leads to consistency in how (and when) costs are calculated.

External Failures can involve more remediation activities and tasks than any other type of failure. Not only must the customer’s immediate needs be addressed but internal issues such as rework or scrap and the vital tasks of finding and fixing the root cause of the failure are part of the quality costs for an External Failure.
Many External Failures are the result of customer complaints and/or customer returns. The Approximation Value (for an External Failure involving a Customer Return) is a function of the Cost of Goods for the defective goods and internal rework or scrap of those goods plus a fixed value for potential associated costs.
To determine the Cost of Quality of External Failures for a specific time period, total all incidents of External Failures and combine that total with the costs associated with Warranty Claims, Liability Claims and Recalls for the same period.

An incident involving a defective product found (in-process or in final inspection) involves several action items.
Actions involved (when a defective product found internally) could include:
- Rework or scrap of the defective material.
- An internal investigation to locate the root cause.
- Temporary extra operations (in-process labor and/or additional inspection) until the root cause is identified and addressed.
To tally the Cost of Quality of Internal Failures for a specific time period, total all incidents of Internal Failures and combine that with the costs of Yield Loss for the same period.

The Approximation Value for most Appraisal activities can be based on budgeted costs prorated on a specific time interval, usually monthly.
Tasks in the Appraisal category can be grouped into 4 categories:
- Testing and Inspection
- Calibration Tasks
- Quality Audits
- Reliability Analyses

The greatest cost impact from the Prevention category will likely be for improvement projects and engineering enhancements.
The costs of most projects will likely be one-time or non-recurring events, and thereby would be incident-based.
Recurring activities in the Prevention category include job-related training and preventive maintenance activities. If those activities are budgeted items, a fixed-cost basis can be set for them.