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.