Cost Of Poor Quality

EPC Division

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 Contents
• Introduction to Cost of Quality
• Cost of Poor Quality
• COPQ Reporting Tool for EPC Division at Project Sites
• COPQ Cases for EPC Functions
• COPQ cases on EPC Projects (During construction phase)
• Conclusion

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 What is Cost Of Quality

• Quality costs or Cost of Quality is a means to quantify the total cost of quality-
related efforts and deficiencies.

Cost of
Quality

Cost of Good Cost of Poor

Quality Quality

Prevention Appraisal Internal External

Cost Cost Failure Cost Failure Cost

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 Cost of Quality
1) Cost of Good Quality Cost of Good
Quality
• Prevention Costs: Prevention costs are incurred to
prevent or avoid quality problems. These costs are
associated with the design, implementation, and
Prevention Appraisal
maintenance of the quality management system. Cost Cost

• Appraisal Costs: Appraisal costs are associated with

measuring and monitoring activities related to quality.
They could include:
o Verification: checking of incoming material, process
These are all
setup, and products against agreed specifications
planned and pro-
o Quality audits: confirmation that the quality system is active activities
functioning correctly
o Supplier rating: assessment and approval of suppliers
of products and services

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 Cost of Quality
2) Cost of Poor Quality
• Internal Failure Costs: Internal Failure costs are
related with recognizing a non-conformance exists
prior to the product reaching the customer. The most
common cost in this category is rectification or Cost of Poor
Quality
correction of defective material/product followed by
rework costs.
Internal External
• External Failure Costs: This is failure of a product or Failure Cost Failure Cost
service at the delivery point or usage point of the
customer or user. There are two reasons why this
failure is so severe. One, the product has had its full
value added by the manufacturer, including
transportation and storage costs. Secondly, customer
experienced the failure, and depending on the
severity of the failure, this could greatly damage the
organizational reputation and subsequently hinder
future business. 5
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 Cost Of Poor Quality (COPQ)
Definition of Cost of Poor Quality (COPQ):
Those costs that are generated as a result of producing defective material/product. It also
includes the cost of lost opportunity due to the loss of resources used in rectifying the defect.

Calculating COPQ:

Internal External Cost of Poor

Failure Cost + Failure Cost = Quality (COPQ)

COPQ is actually price of a non-

conformance that organizations
choose to pay for poor quality.
(Philips Crosby)

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 COPQ Reporting Tool in EPC Division for
Project Sites
• COPQ reporting at EPC Projects sites shall
be done by raising Non-Conformance
against deviation/deficiencies.

• Any NCR shall not be closed if rework cost

incurred against the corrective action
taken is not provided on prescribed
Rework Cost reporting format.

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 COPQ Cases for EPC Functions
• Proposals
A

• Contracts
B

• Engineering
C

• Procurement
D

• Construction
E

• Pre-Commissioning/Commissioning
F

• Planning & Control

G

• Project Management
H

• Human Resource
I

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 COPQ Cases on EPC Projects
(Construction Phase)
• Following is the list of COPQ cases which could be faced by EPC during
construction phase of the project.
• An NCR shall be raised immediately in case any of the following events
occurred/observed in order to capture rework cost/COPQ incurred to take
necessary corrective action in closure of that NCR.
• For appropriate reporting of COPQ events; construction phase of project is
segregated into 2 Phases, i-e Site Execution & Pre-commissioning/Commissioning
activities

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 COPQ Cases
Sr. No. COPQ Cases during Site Execution
1 Non-preparation of DORs with Construction Division/subcontractors
2 Work proceed without approval of quality documents (MS, ITP, etc.)
3 Lack of engaging construction teams for constructability issues.
4 Work not carried out as per latest revisions of IFC drawings
Deviation of actual work from IFC drawings which cannot be covered in as-built drawings or
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will affect the system integrity if placed in service.
6 Welding on unqualified WPS
7 Welding by unqualified welder
8 Erection of heavy equipment & structure on un-approved/without rigging study.
9 Welding distortion whether in structure, piping or equipment which need repair by cutting
and re-welding
10 More than 2 repairs of a weld joint appeared during visual or any NDT technique
11 Weld repair rate in excess of defined KPI.
12 Leakage in hydro-test due to base metal or welding failure

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 COPQ Cases
Sr. No. COPQ Cases during Site Execution
13 Damage to equipment/material during erection which require a repair procedure for
restoration
14 Application of wrong paint
15 Misalignment in piping to equipment connections
16 Performance of hydro-test without NDT clearance
17 Equipment idling beyond schedule
18 Use of non-certified machinery & equipment.
19 Use of non-calibrated inspection and test equipment (IMTEs)
20 Incorrect coordinates of structure.
21 Improper curing of concrete
22 Formwork collapsed during concreting
23 Concrete surface defects like honey combing, segregation, exposed rebar.
24 Bore collapse during the concrete pouring of piling.
25 Choking of treim pipe during piling.
26 Overflow not according to required cut-off level or design.

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 COPQ Cases
Sr. No. COPQ Cases during Site Execution
27 Creation of mud joint during piling.
28 Failure of concrete compression test
Sr. No. COPQ Cases during Pre-Commissioning/Commissioning
1 Unclear pre-commissioning and commissioning scopes with Client
2 Poor VSM management
3 Lack of SOPs and systems for management of commissioning activities
4 Changes in P&ID and isometric drawings
5 Equipment failure due to improper design
6 Failure in energization of integrated systems.
7 Failure in loop & continuity testing of cables.
8 Insufficient line blowing/flushing/cleaning causing equipment damage
9 Increased blinding than planned for pre-commissioning of system/sub-system.
10 Incorrect bolting or inefficient bolt reinstatement.

11 Commencement of pre-commissioning/commissioning activities without test pack/MCC

approval from Client/QA&QC.
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 Conclusion
• Reducing Cost of Poor Quality is one of the best ways to increase Company’s
profit.
• Aligns quality & goals
• Prioritize the problems and provides means to measure change/improvement
• Provides a means to correctly distribute controllable quality cost for maximum
profits.
• Promotes the effective use of resources.
• Provides the incentives for doing the job right every time.
• Use COPQ as a tool to identify improvement areas (prevention or appraisal) in
order to eliminate external and internal failures which will contribute towards
improvement in quality level of the company.

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 i o n s?
u e st
Q
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Thank You

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