Working with quality is not just about avoiding mistakes. It is also a way to free up money and resources that would otherwise be lost through unnecessary costs.

Many view quality work as a rather dull obligation to meet customer expectations - and, for many, to satisfy any potential ISO requirements. But the truth is that you can actually make money by managing poor quality - purely through cost savings and reduced risks.

In this article, we go through how these costs arising from a lack of quality - often called Cost of Poor Quality (COPQ) - affect the business and how systematic quality work can save, and ultimately earn, significant amounts.

What is COPQ?

Cost of Poor Quality (COPQ) encompasses all the costs that occur when your business does not deliver the required quality. This may include:

Direct waste: materials scrapped, products that must be discarded.
Man-hours spent resolving complaints, deviations, or urgent customer issues.
Customers switching suppliers after repeated dissatisfaction.
Sanctions or fines due to failure to comply with laws and requirements. COPQ is not a trivial problem. Many studies indicate that poor quality costs companies a significant percentage of their revenue. Some estimate that, on average, hidden costs due to poor quality can be between 5% and 20% when all aspects of internal and external errors are taken into account. That is a lot of money that directly affects profitability.

Reducing COPQ can therefore be a quick and often overlooked path to increased profitability. By eliminating the costs arising from mistakes, deviations, quality shortcomings, or complaints, you free up capital.

The start can be short. Companies that begin to reduce their COPQ can see results in just a few months, especially if the work is carried out in a structured manner.

There is also a significant indirect benefit. Improved quality not only means saved money. It can also enhance the brand, create more loyal customers, and lead to new business. By delivering better than competitors, you also gain a stronger selling point.

Different Types of COPQ

It can be helpful to divide COPQ into categories. Typically, we speak of internal and external costs as well as preventive and detection costs. By grouping the costs, you can see how they are related and where to take the appropriate actions.

Internal Failure Costs

These are costs for errors detected before the product or service reaches the customer. Examples include:

Scrapping in production.
Rework, e.g., when an item has to be fixed or an error corrected after the product is finished.
Lost time when staff must troubleshoot and correct errors.
Increased inventory costs to manage unforeseen deficiencies. Internal failure costs are relatively easy to detect because they become visible internally. They are still costly, especially as employees’ working time is used to fix the errors.

External Failure Costs

These are errors that occur and are only discovered once the product or service has reached the customer. There is a risk for greater costs and impacts:

Warranty issues and complaints.
Customer complaints.
Lost customers.
Potential legal disputes, damages, or fines. External failure costs can become very expensive because they usually imply that you have already lost both time and reputation. In addition, you may have to deal with costly complaint processes later on.

Preventive Costs

These are investments you make to avoid errors from the start. For example:

Training staff in standards and routines.
Investing in quality control and clear process maps.
Time to plan and test systems in advance.
Document control to ensure that the correct version is always used. Even though preventive actions cost money, they are often well worth it. A well-thought-out investment in preventive work is usually less costly than dealing with the consequences of repeated quality deviations.

Appraisal Costs (Detection Costs)

This category includes everything related to testing, inspections, and validations:

Quality checks and audits (e.g., internal audits according to ISO 9001).
Measuring and reporting quality key performance indicators (KPIs).
Control activities among suppliers. These costs are necessary to quickly identify new sources of error and to verify if a product or service meets expectations. Remember that proper follow-up is the key to continuous improvement, which in the long run reduces COPQ.

Why You Benefit from Measuring COPQ

When you measure COPQ in a methodical way, you obtain figures that clearly show where the problems lie. “Chasing quality” without clear measurement can make it difficult to know which actions actually make a difference. Instead, using a management system to establish a system with measurements - for instance, using KPIs related to the number of deviations, cost per error, delivery reliability, and customer satisfaction - brings clarity.

With the right metrics you can:

Identify the biggest cost drivers.
Reduce the errors with the greatest impact on profitability.
Develop a common language across the organization for quality and its economic impact.
Conduct data-driven communication with the management team. The key is not to overcomplicate it. A simple list of the main error types, along with an estimate of what they cost, is often a good starting point. Once you have that picture, you can prioritize - which errors drive the highest costs, which are easiest to fix, which are most critical for the customers?

How to Visualize COPQ in a Management System

Modern digital management systems like AmpliFlow make it easier to work systematically with COPQ. You can collect data on deviations, complaints, and warranty cases in one place. When the statistics are compiled, you can create effective dashboards and reports. For example, you can see:

The number of deviations per process, sub-process, and even process step.
The cost of internal failures versus external failures.
KPIs that display data compared to previous years. This insight helps both managers and employees understand where the major problems are and how to act. When these insights are shared throughout the organization, engagement increases. With clear feedback on costs and savings, motivation to prevent new errors improves.

Digital Tools for Deviation Management

An important step in handling COPQ is having a structured process for deviations:

Detection: A product, system, or process fails to meet the requirements.
Reporting: The employee records the deviation in the management system.
Review: The appropriate recipient is notified and reviews the reported deviation, gathering additional information if necessary.
Analysis: The responsible persons, involved parties, or quality coordinators investigate the cause of the deviation.
Action: Corrective and preventive actions are established to immediately resolve the problem and to implement long-term solutions.
Verification: Relevant stakeholders verify that the deviation has been correctly resolved. With AmpliFlow’s module for deviation management, everything is handled digitally. You avoid paperwork and can directly track how many deviations are open, who is responsible for them, and how far the corrective work has progressed. In addition, you can link the deviations to relevant processes, sub-processes, and process steps. This not only automates assignment but also provides a multi-level visualization of open deviations in your process map.

The Importance of CAPA (Corrective and Preventive Actions)

COPQ often arises from recurring errors or shortcomings in processes. Therefore, it is not enough to simply fix a single problem once (firefighting). You must also ensure that the error does not recur. This is where the CAPA process comes in.

Corrective Actions: Fix the immediate problem. Preventive Actions: Implement changes in processes, training, responsibilities, etc.

With a clear CAPA process, quality work becomes long-term. When you use digital systems to manage CAPA work, you can easily follow up on the actions and responsibilities. You avoid duplicate work and the same problem does not have to be resolved multiple times. This persistence in action ultimately leads to a lower COPQ in the long run.

Establish Process Maps and Clear Flows

A common mistake many companies make is that each department or role works according to its own routines, which are not always coordinated. This often leads to errors in handovers, missed steps, or duplicate work. By mapping out clear process maps and documenting workflows in a digital management system, you can avoid many misunderstandings or gaps.

For example, a company dealing with constant complaints might start mapping out where the complaints occur. It may turn out that certain orders are frequently missing critical information from the outset, leading to incorrect deliveries. By creating a checklist during the sales stage (a simple routine in AmpliFlow), you can prevent critical information from being overlooked. In this way, a source of costly customer complaints is eliminated and you significantly reduce COPQ.

Linking COPQ to Environment and Sustainability

Many think of quality and environment as two separate areas. But COPQ often has an environmental connection. Every time you discard material or use extra energy to correct errors, you also increase your environmental impact. By reducing your internal and external failure costs, you also take steps toward a greener footprint.

Standards like ISO 14001 (environmental management systems) and ISO 9001 (quality management systems) share the same High Level Structure and harmonize well. Reducing resource waste supports both quality and environmental goals. It can even provide tax advantages or opportunities for environmental certifications that appeal to environmentally conscious customers.

Customer Requirements, Supplier Assessments, and Profitable Collaboration

COPQ can arise not only from your own mistakes but also from shortcomings in suppliers or partners. Therefore, it is important to:

Set clear requirements for quality, environment, and regulatory compliance.
Follow up on suppliers, for instance through regular assessments or audits.
Maintain good communication so the supplier understands how important quality is to you.

Using a digital management system, you can collect all information about suppliers and their performance. You get an archive of completed assessments, risk analyses, and any remarks. You can see if a specific supplier is linked to recurring quality deficiencies or if certain suppliers contribute to costly problems.

Clarifying requirements specifications to suppliers early on about quality and sustainability reduces the risk of expensive surprises later. The better your suppliers perform, the less COPQ you are exposed to internally. Managed correctly, supplier relationships can become a competitive advantage, as your customers in turn experience fewer problems with deliveries or products.

Risk Management to Avoid Major Quality Costs

Large outbreaks of quality problems can sometimes escalate into crisis situations. With systematic risk management, you can prevent problems from growing until a full-blown crisis occurs. In a good risk analysis, you identify:

What risks exist in production or service delivery?
Which are most likely and which could have the greatest consequences?
What actions need to be taken to reduce the likelihood or impact?

Many ISO standards — such as ISO 9001 (quality), ISO 14001 (environment), and ISO 45001 (occupational health and safety) — include requirements or clear guidelines for risk-based thinking. You are expected to be aware of both opportunities and risks. Linked to COPQ, proactive risk management can prevent major product recalls or disasters that cost enormous sums.

When working with digital risk management in a tool like AmpliFlow, you can create risk matrices and link them to processes, competence requirements, or deviations. You get a comprehensive view of where the risk of errors is greatest and where you need to take action to prevent quality decline and cost increases.

Implement a Culture of Continual Improvement

To successfully manage COPQ and create long-term profitability, it is important to establish a culture of continual improvement within the organization. This means that all employees, from management to operational teams, are engaged in constantly seeking ways to improve quality and efficiency in their processes. Here are some key steps to foster such a culture:

1. Training and Awareness

Training is crucial to ensure that all employees understand the importance of quality and how their work affects it. By training staff in quality principles, processes, and tools, you increase their ability to identify and address quality problems. It is also important to create awareness about the costs of poor quality and how these affect the company’s bottom line.

2. Participation and Empowerment

By involving employees in decision-making and giving them the authority to improve their own work processes, you increase motivation and commitment to quality work. This can be achieved through regular meetings, workshops, and brainstorming sessions where improvement ideas are discussed and implemented.

3. Highlighting Gains from Improvements

To encourage continual improvement, it is important to reward and recognize employees and teams that contribute to improved quality and reduced COPQ. This can take the form of incentive programs, awards, or other forms of recognition (simply showing appreciation is often overlooked) that motivate staff to continue their quality work.

4. Follow-up and Feedback

Regular follow-up and feedback are critical to ensure that improvement initiatives lead to the desired results. By using digital tools, you can quickly identify areas for improvement. Feedback should be provided at both individual and team level to maintain engagement and accountability.

Summary

Effectively managing COPQ not only reduces the costs of poor quality but also creates a culture where quality and continual improvement are central parts of the business. By using digital tools like AmpliFlow to measure and visualize quality data, and by fostering a culture of participation and empowerment, companies can reduce their quality costs and thereby increase their profitability.

To succeed with this work, a wholehearted commitment from the entire organization is required. When COPQ is managed proactively and systematically, new opportunities open up to save money, improve customer satisfaction, and strengthen the company’s competitive position in the market.

This journey toward higher quality and lower costs is not only an economic necessity but also a strategic investment in the company’s future.