The Cost of Quality

Talking about Quality we have to consider costs. When it comes to investing in quality I always hear people talking about ROI. It is hard to calculate ROI on quality practices, it is harder to analyze the ROI when it comes to Software Quality. First off all it is hard to define what the Quality Costs are.

The term “quality costs” has different meanings to different people. Some equate “quality costs” with the costs of poor quality (mainly the costs of finding and correcting defective work); others equate the term with the costs to attain quality; still others use the term to mean the costs of running the Quality department.

Juran's Quality Handbook

Which is the total cost of a defect? The true is that nobody can tell exactly which is the total amount of money spent by the IT department in fixing a defect or if spending in testing and quality tools has been worth.

Costs of poor quality do not exist as a homogeneous mass. Instead, they occur in specific segments, each traceable to some specific cause. These segments are unequal in size, and a relative few of the segments account for the bulk of the costs.

How can we prove that it is really worth to spend money in quality? We have to go back to fundamentals and try to define a quality/cost model. A solution has been pointed out by Joseph Moses Juran in his quality handbook.

First of all we need to define the macro areas that concur to form he quality costs:

1. Internal Failure Costs (defects discovered before delivery)
   
2. External Failure Costs (defects in production)
   
3. Appraisal Costs (costs of testing)
   
4. Prevention Costs (costs of the quality organization)
   

We can group together the first the third and the fourth and call them Direct Costs of Quality whilst the second can be called indirect cost since it is not a proactive spending for quality but is a reactive expense.

If we plot Quality as % of conformance (to the requirements) in the x axis and costs in the y axis we have the cost of quality that raises from zero at 0% of quality to a certain amount that is the cost of 100% of quality. The Failure Costs are zero when there is a 100% of quality and raise when the quality decreases. It is trivial to work out the total cost of quality: the sum of the two curves is the total cost of quality. This graph is somehow misleading: actually the cost of 100% of quality is much higher and usually looks like the graph below:

In this graph you can see that the cost to reach the 100% of quality grows unlimited. Therefore the right cost of quality, at the minimun of the total costs curve, does not correspond to the 100% of quality. This is the right spending for quality if the only parameter to be considered is the cost.

With this in mind now we can move to analyze the other big question: how quality costs can be optimized? 

Indirect costs can be reduced, but they are unpredictable and it is always a reactive way to manage your quality spending. On the other hand direct costs of quality can be reduced in order to reduce the total cost of quality. This solution leads to a poorer quality into the organization. 

The real challenge is to spend the same amount of money improving the overall quality. How can you achieve this? The answer is easy: you can do it by spending better the same budget introducing quality's best practices in your IT division. 

Summarizing: it is hard to calculate the ROI of your quality spending. This does not means that you cannot prove the benefits of your spending in quality. By approaching the problem with a “quality-costs” model the optimum spending for quality can be identified and it does not correspond to the spending for 0% of defect. Therefore to improve the quality in the organization most of the times is not required an extra investment but a better use of the budget.