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The calculation you’re looking for is COPQ or Cost of Poor Quality.

The idea is to calculate the labor hours saved by removing waste and then multiply them by the average loaded salary of the process participants impacted.

In the case where Defects cause the process to “scrap” products, you can calculate the lost value of goods. You can also look at the removal of waste as an increase in capacity. That would involve calculating how many more customer transactions could be completed with the time made available by the removal of waste. In each case you are calculating the impact of the Waste.

Aside from labor hours and scrap materials, you can also calculate cost avoidance when reducing the waste of transportation – less transport costs. It depends on the waste, but this gives you some general guidelines around converting waste into dollar value.

Elisabeth Swan

Elisabeth is a Managing Partner & Executive Advisor at GoLeanSixSigma.com. For over 25 years, she's helped leading organizations like Amazon, Charles Schwab and Starwood Hotels & Resorts build problem-solving muscles with Lean Six Sigma to achieve their goals.