Thursday, December 30, 2010

Cost of Quality

The cost of quality includes all costs incurred in the pursuit of quality or in performing
quality-related activities. Cost of quality studies are conducted to provide a base-
line for the current cost of quality, identify opportunities for reducing the cost of quality,
and provide a normalized basis of comparison. The basis of normalization is
almost always dollars. Once we have normalized quality costs on a dollar basis, we
have the necessary data to evaluate where the opportunities lie to improve our
processes. Furthermore, we can evaluate the effect of changes in dollar-based terms.

Quality costs may be divided into costs associated with prevention, appraisal, and
failure. Prevention costs include
• quality planning
• formal technical reviews
• test equipment
• training

Appraisal costs include activities to gain insight into product condition the “first time
through” each process. Examples of appraisal costs include
• in-process and interprocess inspection
• equipment calibration and maintenance
• testing

Failure costs are those that would disappear if no defects appeared before shipping a
product to customers. Failure costs may be subdivided into internal failure costs and
external failure costs. Internal failure costs are incurred when we detect a defect in
our product prior to shipment. Internal failure costs include
• rework
• repair
• failure mode analysis

External failure costs are associated with defects found after the product has been
shipped to the customer. Examples of external failure costs are
• complaint resolution
• product return and replacement
• help line support
• warranty work

As expected, the relative costs to find and repair a defect increase dramatically as
we go from prevention to detection to internal failure to external failure costs based on data collected  and others, illustrates this phenomenon.


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