The cost incurred by producing non-conforming product/service. It includes the categories of appraisal (inspection, audit), internal failure (defectives, rework, scrap, ineffective use of resources), external failure (repairs, service calls, warranty claims, write-offs, lost business and lost opportunities) and prevention (costs incurred trying to minimize the cost of appraisal and failures). Poor quality in the supply chain also compounds these costs.
COPQ quantifies or gives a dollar amount to the various non-value added activities and Inputs contributing to the non-conforming output. Contrary to popular opinion, COPQ typically accounts for up to 30% of sales and 40% of operating costs. It is used as a starting point for calculating Six Sigma project benefits. Each organization must define its own criteria for calculating benefits.
Calculating COPQ Using Weighted Risk of Potential Failures (iSixSigma): - http://www.isixsigma.com/library/content/c040510a.asp An Example of COPQ from Concordia University: - http://web2.concordia.ca/Quality/tools/8costofpoorquality.pdf