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cost of quality

How Measuring Cost Of Quality Prevents Software Development From Failing

Research shows that 25% of all software projects fail originally because of poor project management. That’s why we should indeed measure the cost of quality in the software development process. 

Even if it does not guarantee a 100% error-free outcome, it allows us to set a realistic objective, avoid product flaws, and deliver positive results within constraints.

In this post, we will explain what the cost of quality is and how it can help you manage software projects efficiently. As a result, the blog will bring many benefits to those who are currently developing technical products or working with software partners. 

Content

  1. Definition and formula of cost of quality (COQ) in software development.
  2. How measuring COG prevents software projects from failure.

What is the Cost of Quality in Software Development?

Cost of Quality Definition

The cost of quality (CoQ) is a methodology to calculate the costs that businesses incur to ensure their products meet quality standards, as well as the costs of producing goods that do not meet quality standards.

The overall goal of this approach is to balance capabilities and costs while reducing rework and bug fixing. It aids in lowering operational costs while providing a high-quality product to customers. It’s all about increasing project efficiency.

COQ can be calculated in terms of effort (hours or days), money (by converting the effort into a cost), or as a percentage of the total cost. Then, after investing in COQ for software projects, the company will be able to evaluate the following:

  • the proportion of COG of quality in software development to overall costs.
  • the share of failure costs to overall development costs.
  • The percentage of COG in total sales and maintenance.

Cost of Quality Formula

cost of quality

As in the diagram, the Cost of Quality equation contains two distinct terms: the Cost of Good Quality and the Cost of Poor Quality.

The cost of good quality includes prevention costs (to prevent defects) and appraisal costs (to detect defects), whereas the cost of poor control includes internal and external failure costs.

Therefore, we have the following formula: 

cost of quality

Specifically:

  • COQ: Cost of Quality
  • PC: Prevention Costs
  • AA: Appraisal Costs
  • IFC: Internal Failure Costs
  • EFC: External Failure Costs

Types of Costs In COG (Cost of Quality) 

Prevention costs 

Prevention costs indicate the costs associated with the efforts to avoid the occurrence of defects. The prevention can be costs of:

  • Creating software quality specifications and testing criteria.
  • Improving employee quality awareness, training, and evaluation.
  • Evaluating the quality audit and improvement program.
  • Etc…

Appraisal costs

Appraisal costs represent the costs of inspected tests and checks to determine if the specific requirements are met. The following costs may be incurred during an appraisal:

  • Checking the performance of finished products cost.
  • Evaluating the development process cost.
  • Etc…

Internal failure costs 

Internal failure costs are expenses to correct all nonconformities discovered prior to delivery to customers or end users. Some examples of internal failure costs are:

  • Costs associated with reprocessing and repeating tests
  • Wastes due to poor operation processes
  • Etc…

External failure costs

External failure costs are charges to correct all nonconformities discovered after the products are delivered to users and customers. The following are some examples of external failure costs:

  • Customer complaints and product or material returns.
  • Lost opportunities to increase revenue.
  • Cost of warranty.
  • Etc…

In short, we can distinguish the cost types included in COQ (Cost of Quality) as in the diagram below.

cost of quality

Read more: How to create an effective e-learning product in 2022.

How Measuring COG Prevents Software Projects From Failure

Businesses are operated to be profitable, and the cost of developing software or apps should be practical. As the result, the main rationale COG can protect every software project is to decrease cost.

Decrease the cost of fixing defects.

The cost of repairing flaws is determined by when it was discovered during the software development process. The curve in Figure 1 shows that the cost of late-discovered requirements errors will increase significantly.

cost of quality

Regardless of the exact figures, there is widespread agreement that early defect correction is far less expensive than fixing defects after release (Sanket 2019, Winters et al. 2020)

Therefore, the sooner you use Cost of Quality, the more costs you save for your projects.

Let us conduct a small hypothetical case evaluation due to the practicality of COQ to clarify the statement.

Assume we’re creating a mobile app with two options: with and without quality management. In each case, we’re dealing with 200 errors (bugs) in total, and we’re assuming a $20 price to fix a bug found internally and a $100 price to fix a bug found externally.

Case 1: Without quality management

In the first case, without quality management, COQ investment is zero, and money is only spent to fix bugs.

Assume we discovered 50 bugs internally and 150 were reported by customers after using the app.

The total COQ would be (50*$20) + (150*$100) = $16,000.

Case 2: With quality management

Assume we spend 100 additional hours on quality management procedures in the second case. Thus, at a developer hourly rate of $50, we invest approximately $5,000 in software quality.

As a result, we detect 175 internal bugs and 25 external bugs.

The total COQ is $5,000 +  ((175*$20) + (25*$100)) = $11,000.

cost of quality

You can easily make a comparison, the company can save $4000 due to applying quality control in the development process. That’s a huge cost saving.

Read more: How a software consultant benefits your business

Conclusion

Companies should be proactive in managing quality costs and heavily invest in prevention and evaluation costs to reduce exposure to both internal and external failure costs. 

There is a note that, most IT firms spend 15-20% of total sales revenue on quality-related costs, with a few spending even more. However, for efficient and profitable workflow, a 10% to 15% margin is also a good rule of thumb.

If you are still confused about how much to invest in the Cost of Quality, contact icts.io to receive consultation specifically for your projects.

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