Cost of quality
Cost of quality is the sum of costs incurred to achieve good quality and to deal with failures: prevention, appraisal, internal failure, and external failure. Prevention spending typically saves far more in failure costs.
FrameworkCost of quality
See it move
Total cost of quality adds four categories: prevention (training, planning), appraisal (inspection, testing), internal failure (rework, scrap) and external failure (warranty claims, returns). Spending an extra €50,000 on prevention can avoid €200,000 of failure costs, so total cost of quality falls even though prevention and appraisal both rise.
The formula
Variables
- Prevention costs — training, process design, quality planning to stop defects occurring (€)
- Appraisal costs — inspection and testing to detect defects before delivery (€)
- Internal failure costs — rework, scrap, and downtime caught before the product leaves the factory (€)
- External failure costs — warranty claims, returns, and lost goodwill after delivery to the customer (€)
Higher prevention spending typically reduces failure costs by more than the additional prevention outlay
Check yourself
A furniture manufacturer discovers a defect after 2,000 chairs have already been shipped to retailers. It funds a product recall campaign, repairs all returned items, and issues refunds to dissatisfied customers. Under the cost-of-quality framework, these costs are classified as: