Use avoidable cash or capacity costs. Do not count theoretical opportunity revenue as collected revenue.
Try this with your own numbersFormula and worked example
Errors to prevent = ceiling(prevention cost / cost per error)
| Input | Example |
|---|---|
| Monthly prevention cost | 500 |
| Fully assigned cost per avoidable error | 125 |
| Calculated result | 4 errors per month |
Choose reliable inputs
Track purchased quantities, usable yield, labour and waste before deciding on a selling price. For this bakery calculation, use recipe sheets, supplier invoices and stock counts and a consistent definition of one order.
- Ingredients: include the portion belonging to this order or reporting period, and record where the value came from.
- Preparation: include the portion belonging to this order or reporting period, and record where the value came from.
- Packaging: include the portion belonging to this order or reporting period, and record where the value came from.
Use the same currency for every money input. Do not mix weekly costs with monthly revenue, or count the same expense in both an itemised cost and allocated overhead.
How many errors must quality control prevent to pay?
Use avoidable cash or capacity costs. Do not count theoretical opportunity revenue as collected revenue.
What if this input changes?
If monthly prevention cost rises by 10%, this example changes by 1 errors per month. This shows the effect of one change; it does not predict what will happen.
Open the calculator, save your baseline, then change the input supported by the least reliable estimate in your records. Compare both scenarios before committing to a price or capacity promise.