By W. Frazier Pruitt and Douglas C. Wood · Originally published in Quality Progress, June 2026.
Keywords
This month’s question
What is the real cost of poor quality, and how can a well-designed quality program help organizations identify the most important hidden costs to improve profitability, efficiency and customer satisfaction?
Our Response
Most organizations recognize that quality matters, and managing it proactively can help prevent costly issues such as scrap, rework and returns. The organizations already see poor quality in these areas and understand that investing in quality programs enhances customer satisfaction and reduces waste.
The challenge is that often, traditional reports highlight only visible metrics, leaving many hidden costs of poor quality unaddressed and misunderstood.
Poor quality costs more than the scrap, rework and warranty items that appear on reports because many hidden costs are difficult to measure and often go untracked. A missed shipment, for example, rarely appears as one neat line item. It spreads into expediting, rescheduling, extra coordination, management attention, disrupted flow and a customer who now wonders whether the next order will arrive when promised. Traditional accounting may capture pieces of that loss, but it is not designed to surface the many operational consequences of poor quality. A cost of quality (COQ) approach helps close that gap by making the most important losses visible and manageable.
That does not mean every hidden cost deserves equal attention. Some are small, and some are so diffuse that chasing a precise estimate adds more effort than value. The practical task is not to build a perfect catalog of every hidden dollar, but it is to identify the important hidden costs, especially the vital few that recur, distort operations and eventually affect the customer.
That distinction matters because the real cost of poor quality is not just financial leakage, but also is lost capacity, slower flow and weaker trust.
The visible costs are the starting point, but many hidden quality costs are buried in daily operations—extra handoffs, repeated approvals, searching for information and duplicate checks—that often go unnoticed but affect performance.
Office work makes this point especially well. In one case, workflow waste, distractions and messaging inefficiencies were the largest sources of office loss, with total annual waste exceeding $25,000 per employee. Much of that waste came from redoing work because the first pass did not meet requirements.1 That is poor quality, even when no scrap bin is nearby and no one calls it a defect. It still is wasted time, delayed output and reduced value.
The hidden costs that warrant the most attention are those that do more than inflate internal expenses. They weaken the customer experience.
Customers do not experience poor quality as an accounting category. They experience it as delay, inconsistency, inconvenience, confusion and reduced confidence. Bank customers may not see the rework behind an error, but they do feel the delay, the extra call and the irritation of having to check whether the problem truly was fixed.
A patient does not care which internal account absorbed the waste. That patient notices waiting, confusion, repeating steps and avoidable friction. Healthcare issues extend into insurance problems, such as a specialist’s office dropping a major insurance company due to contract disagreements or arbitrarily denying payment after preapproval has been obtained.
When internal failures cross the line into customer experience, the cost becomes more than operational. It becomes strategic.
That is why customer satisfaction is not a soft add-on to quality cost. It is one of the most important outcomes. In the banking case, attacking high COQ opportunities reduced costs and defects while increasing customer satisfaction, and the analysis helped leaders prioritize the opportunities with the greatest effect on the bottom line. That is the connection quality leaders must make. The best quality programs do not force a choice between financial discipline and customer focus, but tie them together.
A well-designed COQ program turns hidden expenses into better decisions. It combines visible cost tracking, credible estimation of high hidden costs, prevention and targeted improvement on the few problems doing the most harm.
The program starts by making the obvious costs visible and consistent. Next, it expands to the hidden costs that are important enough to guide action. Not every estimate must be perfect. It must be credible enough to help leaders decide where to act. That is a different standard, and an important one. Quality cost is a management tool, not an academic exercise. As a management tool, it may measure aspects that traditional cost accounting leaves out. It is a metric to drive the desired behavior.
Prioritizing is where Pareto thinking earns its keep. The goal is not to chase the long tail. It is to find the few problems doing the most damage. Asking simple questions about recurring rework, flow breakdowns and customer confidence helps leaders feel capable and motivated to target high-value issues quickly.
Prevention also belongs at the center of the discussion. The old quality logic still holds: The earlier a problem is prevented, the less it costs. That principle is not old-fashioned. It is just unfashionably true. One healthcare case showed internal waste dropping from about $130,000 to about $18,000 after targeted changes, producing net savings of about $110,000 and a savings-to-investment ratio of 15.6 to 1.2 Results like that do not happen because an organization got better at counting defects, but because the organization used quality-cost visibility to change the work.
That is what shift leaders should care about. Poor quality is not simply what shows up in failure reports, but also the broader drag it puts on flow, capacity, coordination and customer trust. A quality program becomes a driver of profitability, efficiency and customer satisfaction when it helps the organization see that drag clearly enough to act on the right problems first.
Poor quality costs more than the scrap, rework and warranty items that appear on reports. The visible numbers are important, but they rarely are the whole story. Not every hidden cost is high, and not every one is worth pursuing. The practical task is to identify the key hidden costs, especially those that reach the customer, and use them to guide action. The point of quality cost is not simply to count defects, but also to make better decisions based on the costs that matter most, whether obvious or hidden.
NEW QUALITY PRESS RELEASE
Quality problems don’t just appear on the shop floor—they surface in delays, rework, miscommunication and hidden costs that drain performance across the organization. In the new fifth edition of Principles of Quality Costs, authors Douglas C. Wood and W. Frazier Pruitt clarify these often-overlooked drivers of waste and provide a modern, practical framework for reducing them.
With updated terminology, expanded research on office and knowledge-work environments, and clear guidance on investments, monitoring, waste and downstream consequences, this edition shows how to make quality costs visible, measurable and actionable. Designed for today’s cross-functional teams, it equips leaders and practitioners to improve processes, strengthen customer satisfaction and deliver bottom-line results. Visit asq.org/quality-press for more details.
Also keep an eye out for the October issue of QP, which will feature an in-depth excerpt from the upcoming new edition.
REFERENCE AND NOTE
- Douglas C. Wood and W. Frazier Pruitt, Principles of Quality Costs, fifth edition, Quality Press, 2026.
- Ibid.
Original publication: Expert Answers: Cost of Quality, Quality Progress, June 2026.