The importance of Cost of Quality in software testing: From expense to advantage

The importance of Cost of Quality in software testing: From expense to advantage
By , Associate Director of QA Operations

Software defects can be costly, both financially and emotionally. They can lead to having to work late nights, missing deadlines, and even losing customers. But there’s a way to prevent these problems: cost of quality (CoQ).

CoQ is a measure of the costs associated with ensuring a product's quality standards. By understanding CoQ, you can make informed decisions about how to best allocate your resources and improve the quality of your software products.

In this article, we will discuss the importance of Cost of Quality in software testing, and how it can be used to improve the quality of software products. We will also explore the four categories of CoQ: prevention costs, appraisal costs, internal failure costs, and external failure costs.

Continue reading to learn more about the Cost of Quality and how it can help you improve your software products.

What is meant by the cost of quality in software testing?

The cost of quality (CoQ) is a measure of the costs needed in order to ensure a product or service meets its quality standards. It includes the costs of preventing defects, detecting defects, and fixing defects.

what is cost of quality

The quality cost consists of two components:

Cost of Good Quality

Prevention costs are the costs of activities that prevent defects from occurring in the first place. This includes activities such as training, process improvement, and quality planning.

Appraisal costs are the costs of activities that detect defects after they have occurred. This includes activities such as testing, inspection, and auditing.

Cost of Bad Quality

Internal failure costs are the costs of defects that are detected and corrected before the product or service gets delivered to the customer. These include costs such as rework, scrap, and downtime.

External failure costs are the costs of the defects that get detected after the product or service is delivered to the customer. These include costs such as customer returns, warranty claims, and lost sales. The quality cost can be a significant expense for businesses. However, by investing in quality assurance, businesses can reduce the cost of quality and improve the quality of their products and services.

Here’s an interesting comparison that can help you to understand the quality cost:

Imagine that you’re building a house. You could choose to build the house quickly and cheaply, but you would most likely end up with a lot of defects. These defects could lead to costly repairs down the road. Or, you could choose to build the house slowly and carefully, making sure that it’s built to high-quality standards. This would cost more upfront, but it saves you money in the long run.

The same is true for software development. You could choose to develop software quickly and cheaply, but you would likely end up with a lot of defects. These defects could lead to lost customers, a damaged reputation, and costly lawsuits. Or, you could choose to develop software slowly and carefully, making sure that it’s built according to high-quality standards. This would cost more upfront, but it would save you money in the long-term perspective.

Comparison of CoGQ and CoBQ

Here’s a comparison table demonstrating the difference between defining and calculating the Cost of Good Quality and Cost of Bad Quality in the IT industry.

AspectCost of Good Quality (CoGQ)Cost of Bad Quality (CoBQ)
DefinitionThe expenses incurred to ensure and maintain high-quality IT products or services.The expenses resulting from poor-quality IT products or services.
ExamplesInvestment in robust development, testing, security, and training processes.Expenses related to bug fixes, system downtime, data breaches, and customer support due to issues.
Calculation Components1. Prevention Costs: Investments in quality planning, process improvement, training, etc.1. External Failure Costs: Expenses from customer complaints, warranty claims, and legal issues.
2. Appraisal Costs: Costs related to quality control activities such as testing and audits.2. Internal Failure Costs: Expenses incurred from detecting and correcting defects before product release.
3. Internal Failure Costs: Costs from addressing defects found before reaching the customer.3. Lost Opportunity Costs: Potential revenue lost due to negative customer experiences and reputational damage.
4. External Failure Costs: Expenses caused by defects that get discovered after reaching the customer.4. Rework Costs: Costs to fix and rework defective products or systems.
Calculation MethodologyCoGQ = Prevention Costs + Appraisal Costs + Internal Failure CostsCoBQ = External Failure Costs + Internal Failure Costs + Lost Opportunity Costs + Rework Costs
FocusCoGQ emphasizes proactive measures to prevent defects and maintain high standards.CoBQ focuses on the aftermath of defects, including financial, reputational, and operational impact.
Long-Term ImpactCoGQ investment pays off by reducing CoBQ, enhancing customer satisfaction and loyalty.High CoBQ can lead to a downward spiral of customer dissatisfaction, increased costs, and reputational damage.
Strategic ImportanceCoGQ contributes to long-term success by building a positive brand image and customer trust.Managing CoBQ is crucial for avoiding financial losses, maintaining credibility, and staying competitive.
Decision-MakingOrganizations invest in CoGQ strategies to ensure sustainable growth and competitive advantage.Organizations strive to minimize CoBQ to avoid financial setbacks and maintain operational efficiency.

Remember that the specifics of these costs can vary based on the nature of IT projects, the technologies used, and the industry context. The goal is to optimize CoGQ and minimize CoBQ in order to achieve overall success and profitability in the IT industry.

What Does Optimal Quality Look Like?

Quality is never perfect. Besides, for each organization the meaning of quality is different. Still, let’s try to define optimal quality for an average company.

Optimal quality in IT can be thought of as an equilibrium point where the costs associated with preventing defects or failures are balanced against the costs incurred when defects or failures actually occur.

optimal quality cost

Remember that finding this balance is an ongoing process. Technology evolves, customer expectations change, and new challenges arise. Continuously monitoring and adapting your prevention and response strategies will help you maintain optimal quality in today’s dynamic IT landscape.

Cost of Quality in Numbers Take a look at the following statistics to understand the importance of quality cost in software testing:

  • 82% believe that Quality Assurance is a sign of trust
  • 20% of companies state that they are not able to measure non-quality
  • The cost of poor quality (COPQ) is estimated to be between 20% and 30% of the IT industry’s total revenue
  • 31% of IT projects are canceled before completion, and 52% get delivered late or over budget
  • The average cost of fixing a software defect after its release is 100 times the cost of fixing it during development.

Cost of Quality Assessment

A cost of quality assessment is a systematic process that evaluates the costs associated with maintaining and improving the quality of products or services within an organization. This assessment helps identify areas of improvement and it’s great for optimizing resource allocation. Here are the steps to follow when conducting a quality cost assessment:

cost of quality assessment
  1. Define the Scope and Purpose. Clearly outline the scope of the assessment. Identify the specific products, services, and processes you want to analyze. Determine the purpose of the assessment, such as identifying waste, optimizing processes, or improving product quality.
  2. Identify Cost Categories. Categorize the costs into different groups: Prevention Costs, Appraisal Costs, Internal Failure Costs, and External Failure Costs. Identifying cost categories helps you categorize and analyze the costs related to the different stages of the quality process.
  3. Gather Data. Collect data related to each cost category. This could involve gathering financial records, maintenance logs, customer feedback, warranty claims, and other relevant information.
  4. Quantify Costs. Assign monetary values to each cost category based on the data collected. Use actual financial figures whenever possible.
  5. Analyze and Interpret Data. Analyze the data in order to understand the distribution of costs across the different categories. Identify trends and patterns that highlight areas of concern and/or potential improvement.
  6. Calculate Cost of Quality Metrics. Calculate key quality metrics, such as the Cost of Quality (COQ) ratio and the Cost of Poor Quality (COPQ). The COQ ratio is the sum of prevention and appraisal costs divided by the sum of internal and external failure costs. The COPQ represents the total cost of internal and external failure.
  7. Identify Improvement Opportunities. Based on analysis, identify areas where improvements can be made. Focus on reducing internal and external failure costs by investing in prevention and appraisal activities.
  8. Develop an Action Plan. Create a plan for implementing improvements. Assign responsibilities, set targets, and establish a timeline for the changes you plan to make. Prioritize initiatives that are likely to yield the greatest cost savings and quality improvements.
  9. Implement and Monitor. Put the action plan into action and closely monitor the results. Track changes in costs, defects, and other relevant metrics to assess the effectiveness of your improvements.
  10. Review and Continuous Improvement. Regularly review the results of your Cost of Quality assessment. Use feedback and data to continuously refine your processes and strategies for quality improvement.

Remember that the success of a quality cost assessment lies in the accurate collection and analysis of data, as well as the commitment to implementing meaningful improvements. These improvements enhance overall quality and reduce the costs associated with poor quality.

Cost of Quality Reporting

The process of cost of quality reporting involves collecting data on these various cost components, analyzing trends, and presenting the information to decision-makers. By quantifying the costs related to quality, organizations can make informed choices about resource allocation, process improvements, and strategic planning. Effective quality cost reporting not only supports better decision-making but it also reinforces a culture of quality consciousness throughout the organization.

Visualization plays a pivotal role in enhancing the effectiveness of COQ reporting. It transforms raw data into meaningful insights through graphical representations that make complex information more accessible and understandable. Visualizations, such as charts, graphs, and dashboards enable decision-makers to quickly grasp cost trends, patterns, and areas of concern.

The importance of visualization in COQ reporting lies in its ability to simplify complex data relationships. A well-designed visualization can highlight cost hotspots that help quality engineering management pinpoint where quality investments are needed the most. Additionally, visualizations aid in tracking the effectiveness of quality improvement initiatives over time. They facilitate data-driven decision-making by allowing stakeholders to identify cost-saving opportunities, allocate resources more efficiently, and validate the return on investment for quality enhancement efforts.

Example of Cost of Quality Calculation on a Software Development Project

Prevention Costs Example
Quality planning and design reviews$5,000
Training for developers and testers$3,000
Process improvement initiatives$2,000
Total prevention costs$10,000
Appraisal costs
Testing efforts (manual and automated)$8,000
Code reviews and inspections$2,500
Quality audits$1,500
Total appraisal costs$12,000
Failure costs
Costs of fixing defects during development$6,000
Costs of fixing defects reported by customers after release$15,000
Customer support for addressing issues$3,000
Total failure costs$24,000

Total Cost of Quality = Prevention Costs + Appraisal Costs + Failure Costs

Total Cost of Quality = $10,000 + $12,000 + $24,000 = $46,000

In this example, the total quality cost for the software development project is $46,000. This includes the expenses related to preventing defects, evaluating product quality, and addressing defects that weren’t caught earlier.

Keep in mind that the figures used in this example are for illustrative purposes only and might not reflect actual costs.


Let's not forget that just as a diamond's brilliance is a result of pressure and precision, high-quality software emerges thanks to rigorous testing that’s guided by the Cost of Quality. So, the next time you interact with a glitch-free app or navigate a website seamlessly, take a moment to appreciate the unseen hands and the silent efforts that made it all possible.

Through a comprehensive understanding of Cost of Quality in software testing, businesses can make informed decisions about resource allocation, project management, and risk mitigation. By considering both the tangible and intangible costs associated with quality, such as prevention, appraisal, internal failure, and external failure costs, companies can strike a balance between investing in preventive measures and addressing defects that may arise during the development process or after product deployment.

In essence, the incorporation of quality cost principles into software testing practices serves as a strategic investment rather than an added expense. By embracing the principles of prevention, early detection, and continuous improvement, businesses can create a cycle of efficiency, cost savings, and high-quality software delivery that sets them apart in today’s ever-evolving technological landscape.

Frequently Asked Questions

The biggest quality cost is often the external failure cost, which encompasses expenses related to addressing defects and issues that emerge after software products have been deployed, including customer support, warranty claims, and the potential damage to a brand’s reputation.

To reduce the quality cost, organizations should focus on preventive measures such as robust requirement analysis, thorough testing, and continuous process improvement. Emphasizing training for personnel, implementing automated testing tools, and fostering a culture of quality can enhance early defect detection and minimize the need for rework. Regular quality assessments and customer feedback incorporation also play pivotal roles in cost reduction by preventing issues from escalating.

Quality cost in testing is calculated by considering various components: prevention costs (expenses on activities to prevent defects), appraisal costs (costs associated with evaluating and verifying product quality), internal failure costs (expenses caused by defects detected before release), and external failure costs (costs resulting from defects discovered post-release, such as customer support and reputation damage). Summing up these categories gives us the total cost of quality in testing.

Managing quality costs involves implementing strategies that optimize resources and enhance product quality. Focus on prevention through comprehensive training, robust processes, and clear requirements. Invest in efficient testing and early defect detection. Regularly evaluate and improve processes in order to reduce errors. Address customer feedback promptly. Balancing preventive measures and addressing defects helps lead to overall cost reduction while ensuring the delivery of high-quality products.

Ivan Sereda
Associate Director of QA Operations
Ivan Sereda is a highly skilled tech professional who serves as the Associate Director of QA Operations at Solvd. Ivan graduated from Belarusian State University. He ensures that software applications and systems at Solvd meet the highest quality standards.

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