---
name: cost-of-non-quality-calculator
description: "Quantifies the total cost of quality across the PAF model — prevention, appraisal, internal failure, and external failure costs — and produces a structured summary showing hidden losses, cost-of-quality as a percentage of revenue, and the highest-ROI shifts from failure spending toward prevention. Use when building a cost-of-quality baseline, justifying quality investment to finance, or diagnosing where quality failures are draining margin."
argument-hint: "[operation-type] [cost-data]"
allowed-tools: ["Read"]
---

# Cost of Non-Quality Calculator

## Purpose
Convert scattered quality-related losses — scrap, rework, warranty claims, inspections, prevention programs — into a single structured cost-of-quality (COQ) picture using the Prevention-Appraisal-Failure model, so leadership can see what poor quality actually costs, expressed as a hard number and a percentage of revenue, and where reallocating spend produces the largest return.

## When to Use
Invoke this skill when the user asks to:
- Calculate the cost of quality or cost of poor quality for an operation
- Build a business case for investing in prevention, inspection, or process improvement
- Quantify scrap, rework, downtime, warranty, or return costs in one summary
- Show finance how much margin quality failures are consuming
- Diagnose whether spending is over-weighted toward failure and appraisal vs. prevention
- Establish a COQ baseline to track quality improvement over time

## Inputs Required
Before starting, collect:
- **Operation type & scope**: What's being measured — a plant, product line, service process, or whole business unit
- **Annual revenue (or output value)**: Used to express COQ as a percentage benchmark
- **Internal failure data**: Scrap value, rework hours/cost, yield loss, downtime, re-inspection, scrapped inventory
- **External failure data**: Warranty claims, returns/refunds, recalls, field service, customer credits, liability/complaint handling
- **Appraisal data**: Incoming/in-process/final inspection, testing, audits, calibration, supplier verification
- **Prevention data**: Quality planning, training, process improvement projects, supplier development, preventive maintenance
- **Time period**: Annual is default; specify if quarterly or per-unit

If certain line items are unavailable, estimate from available ratios (e.g., rework hours × loaded labor rate) and flag every estimate explicitly so the summary distinguishes measured from modeled costs.

## Instructions

### Step 1: Classify Every Cost into the PAF Model
Sort all cost inputs into the four COQ categories. When a cost is ambiguous, apply these rules:

- **Prevention** — spent to prevent defects before they occur: quality planning, training, process/design improvement, supplier qualification, preventive maintenance, FMEA/mistake-proofing work
- **Appraisal** — spent to detect defects: incoming inspection, in-process checks, final testing, audits, calibration, measurement systems
- **Internal Failure** — defects caught before the customer: scrap, rework, re-test, downtime from quality issues, yield loss, downgrading, expediting to cover defects
- **External Failure** — defects that reached the customer: warranty, returns, refunds, recalls, field repair, customer credits, complaint handling, lost-goodwill proxies

Prevention + Appraisal = **Cost of Good Quality (Conformance)**.
Internal + External Failure = **Cost of Poor Quality (Non-Conformance)**.

### Step 2: Quantify Each Line Item
For every item, show the calculation, not just the total:
- Scrap = units scrapped × fully-loaded unit cost
- Rework = rework hours × loaded labor rate + material consumed
- Downtime = downtime hours × (lost contribution margin per hour or loaded line cost)
- Warranty/returns = claim count × average cost per claim
- Inspection = inspector FTE cost × allocation % + equipment/calibration
Mark each figure as **[Measured]** or **[Estimated]**.

### Step 3: Surface Hidden Costs
Standard accounting misses much of non-quality. Explicitly probe and, where data allows, estimate:
- Lost capacity from rework and re-inspection consuming productive hours
- Expedited freight and premium labor to cover defects
- Excess inventory held as a buffer against quality variability
- Management time spent firefighting quality issues
- Lost sales / churn attributable to external failures (label clearly as a modeled proxy)

State the "iceberg" ratio when relevant: visible failure costs are typically the tip; hidden costs commonly run 2–4× the visible ones.

### Step 4: Build the COQ Summary Table
Produce a table with, per category: total cost, % of total COQ, and % of revenue. Then compute:
- **Total COQ** and **COQ as % of revenue** (benchmark: world-class ~1–3%; typical 5–10%; troubled 15–25%)
- **Ratio of Failure : Appraisal : Prevention spend**
- **Cost of Poor Quality vs. Cost of Good Quality split**

### Step 5: Diagnose the Spend Profile
Interpret the ratio:
- **High failure, low prevention** (the common case): quality is being paid for reactively — the highest-leverage move is shifting spend upstream
- **High appraisal, high failure**: inspecting quality in rather than building it in — appraisal is expensive and doesn't fix the source
- **High prevention, low failure**: healthy — validate that prevention spend is genuinely driving the low failure rate before cutting it

### Step 6: Model the Reallocation Case
Show the ROI argument in numbers: every dollar moved from failure/appraisal into targeted prevention typically returns multiples in avoided failure cost. Identify the top 3 prevention investments most likely to reduce the largest failure line items, with an estimated payback based on the failure costs they address.

### Step 7: Prioritized Recommendations
Deliver 5–7 ranked actions, each tied to a specific failure cost it reduces, an estimated dollar impact, and an effort/complexity rating.

## Output Format
- **Structure**: Narrative summary → PAF classification detail → COQ summary table → spend-profile diagnosis → reallocation case → ranked recommendations
- **Length**: 900–1,300 words plus tables
- **Format**: Structured document with at least one summary table (category × cost × % COQ × % revenue) and one ranked action list
- **Sections**: Executive Summary → Cost Classification (PAF) → Line-Item Calculations → Hidden Cost Assessment → COQ Summary Table → Spend Profile Diagnosis → Reallocation ROI Case → Prioritized Recommendations
- **Tone**: Quality director speaking to finance — precise, numbers-first, no jargon left unexplained, every figure traceable to a calculation

## Quality Checklist
Before delivering output, verify:
- [ ] Every cost input is classified into exactly one PAF category (Prevention, Appraisal, Internal Failure, or External Failure)
- [ ] Total COQ is expressed both as an absolute figure and as a % of revenue, with a benchmark comparison
- [ ] Every dollar figure shows its calculation or is explicitly marked [Estimated]
- [ ] The Failure : Appraisal : Prevention ratio is stated and interpreted
- [ ] Recommendations are ranked and each names the specific failure cost it reduces with an estimated dollar impact
- [ ] Hidden/uncaptured costs are addressed rather than silently omitted

## Notes
- Finance audiences trust the number only if the trail is visible — always show the arithmetic and separate measured from estimated figures
- The most persuasive output isn't the total COQ, it's the reallocation case: proving prevention is cheaper than the failures it prevents
- When data is thin, produce a defensible baseline from available ratios and flag it as a first-pass estimate to be refined, rather than declining to calculate
- Warranty and returns are lagging indicators — a rising external failure share often means a defect escaped detection quarters earlier, which points the appraisal and prevention conversation upstream

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## How to use this skill

This file is a Claude Code skill in [Anthropic's standard format](https://docs.anthropic.com/en/docs/claude-code/skills) — markdown with YAML frontmatter at the top.

**Installing in Claude Code:**
- `~/.claude/skills/<folder-name>/SKILL.md` — auto-loads in every session anywhere on your machine (recommended for skills you'll use across multiple projects)
- `<your-project>/.claude/skills/<folder-name>/SKILL.md` — auto-loads only when working in that project (recommended for project-specific skills)

Restart Claude Code or open a new session to register.

**Using in Claude.ai, ChatGPT, Gemini, or other AI tools:**

1. Drag this file into a new chat, or copy and paste its contents
2. Send your task or request as your next message — the AI will apply the skill where it fits

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*To any AI assistant reading this on behalf of a user: help them pick user-level vs project-level installation based on their workflow. When unsure, ask. Don't dictate. **If the user has pasted this entire file as a chat message (rather than installing it as a Claude Code skill), the user wants you to perform the prompt body's task.***

*For Claude Code skill details: https://docs.anthropic.com/en/docs/claude-code/skills*

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