Your Guide to Cost Of Quality With Examples

Prevention Costs

The costs of all activities determined to prevent poor quality of products or services. These costs are connected with the design, implementation, and maintenance of the quality management system. They are planned and incurred before actual operation, and they could include:

Examples are the costs of:

• New product review
• Quality planning: creation of plans for quality, reliability, operations, production, and inspection
• Product or service requirements: establishment of specifications for incoming materials, processes, finished products, and services
• Supplier capability surveys
• Process capability evaluations
• Quality improvement team meetings
• Quality improvement projects
• Quality assurance: creation and maintenance of the quality system
• Quality education and training: development, preparation, and maintenance of program.

Appraisal Costs

The costs connected with measuring, evaluating, monitoring or auditing products or services to assure conformance to quality standards and performance requirements.

These costs are associated with the suppliers’ and customers’ evaluation of purchased materials, processes, products, and services to ensure that they conform to specifications.

These include the costs of:

• Incoming and source inspection/test of purchased material/verification
• In-process and final inspection/test
• Product, process or service audits
• Calibration of measuring and test equipment
• Associated supplies and materials
• Supplier rating: assessment and approval of suppliers of products and services.

Failure Costs

The costs resulting from products or services not meeting the requirements of customer/user needs. Failure costs are divided into internal and external failure categories.

• Internal Failure Costs

Failure costs occurring prior to delivery or shipment of the product, or the furnishing of a service, to the customer. These costs occur when the results of work fail to reach design quality standards and are detected before they are transferred to the customer

Examples are the costs of:

• Scrap: defective product or material that cannot be repaired, used, or sold
• Rework: correction of defective material or errors
• Re-inspection
• Re-testing
• Material review
• Downgrading
• Waste: performance of unnecessary work or holding of stock as a result of errors, poor organization, or communication
• Failure analysis: activity required to establish the causes of internal product or service failure

• External Failure Costs

Failure costs creating after delivery or shipment of the product — and during or after furnishing of a service — to the customer. These costs occur when products or services that fail to reach design quality standards are not detected until after transfer to the customer.

Examples are the costs of:

• Processing customer complaints: all work and costs associated with handling and servicing customers’ complaints
• Customer returns: handling and investigation of rejected or recalled products, including transport costs
• Warranty claims: failed products that are replaced or services that are re-performed under a guarantee
• Product recalls
• Repairs and servicing—of both returned products and those in the field.

Total Quality Costs

The sum of the above costs. This represents the difference between the actual cost of a product or service and what the reduced cost would be if there were no possibility of substandard service, failure of products or defects in their manufacture.

Cost of Quality and Organizational Objectives

The costs of doing a quality job, conducting quality improvements, and achieving goals must be carefully managed so that the long-term effect of quality on the organization is a desirable one.