cost of quality

The total costs of ensuring good quality or rectifying poor quality. Ultimately, by improving quality managers will reduce costs and improve profits. Four categories of costs are useful for this analysis:

• prevention costs. These are the costs incurred in preventing mistakes. Examples include training, quality planning, process controls, and market research. Expenditure in this area is seen as an investment.

• appraisal costs. These include the costs of inspecting parts from suppliers, inspecting and testing products in manufacture, and performing quality audits.

• internal failure costs. These are the costs incurred when a product does not conform to quality standards. Examples include the costs of scrap, repairs to defective products, and downtime. They are incurred before the customer receives the product.

• external failure costs. These are the costs incurred when the customer receives a poor quality product. Examples include the costs of investigating complaints, of replacing products returned by the customer, and warranty charges. If the customer is dissatisfied and finds a new supplier, the total cost will be much higher.

See also: environmental costs