Resource : Prevention costs , Appraisal costs ( measuring, evaluating, or auditing ) Failure costs, Internal failure costs ( Prior to delivery or shipment ) , External failure costs ( after shipment of the product)
The costs of activities specifically designed to prevent poor quality in products or services
The costs associated with measuring, evaluating, or auditing products or Services to assure conformance to quality standards abd performance requirements.
The costs resulting from products or services not conforming to requirements Or customer/user needs-that is, the costs resulting from poor quality.
Internal failure costs:
Failure costs which occur prior to delivery or shipment of the product, or service to customer
External failure costs:
Failure costs which occur after shipment of the product, or service, to customer.
Examples of quality costs
Applicant screening, capability studies, design reviews, employee education, equipment maintenance and repair, field testing, market analysis, prototype test, quality design, safety reviews
Audits, document checking, equipment calibration, final inspection, in-process inspection, lab testing, prototype inspection
Internal failure costs
Accounting error correction, design changes, employee turnover, equipment down time, redesign, repair, rework, scrap sorting
External Failure Costs
Bad debts, customer complaints visits, customer dissatisfaction,liability suit, loss of market share, penalties, Recalls, redesign, returns, warranty expenses
Optimum Quality Cost
Some experts say that for every dollar spent on prevention will save approximately Seven dollars in failure costs. This estimate may not be exact but many companies do not spent enough on prevention. Here is a table listing typical ratio of quality costs for American companies.
· Cost category -> Percent of Total
Prevention -> 0 -5%
Appraisal -> 10 -50%
Internal Failure -> 20 -40%
External Failure -> 20 -40 %
Increasing prevention will take long time to see the result.
Increasing appraisal usually cause internal failure to increase and external failure to decrease in the beginning.
Advantages of a Quality Cost System
• Provides a manageable entity and a single view of quality
• Aligns quality and company goals
• Provides a problem prioritization system and a means of measuring change
• Provides a way to distribute controllable quality costs for maximum profits
• Improves the effective use of resources
• Provides emphasis for doing job right every time
• Helps to establish new product processes
Limitations of a Quality Cost System
• Quality cost measurement does not solve quality problems
• Quality cost report do not suggest specific actions
• Quality costs are susceptible to short-term mismanagement
• It is often difficult to match effort and accomplishment
• Important costs may be omitted from quality cost reports
• Inappropriate costs may be included in quality cost report
• Many quality costs are susceptible to measurement errors