Quality Costs - Definitions

Definitions

Feigenbaum defined the following quality cost areas:

Cost area Description Examples
Costs of control (Costs of conformance) Prevention costs Arise from efforts to keep defects from occurring at all
  • Quality planning
  • Statistical process control
  • Investment in quality-related information systems
  • Quality training and workforce development
  • Product-design verification
  • Systems development and management
Appraisal costs Arise from detecting defects via inspection, test, audit
  • Test and inspection of purchased materials
  • Acceptance testing
  • Inspection
  • Testing
  • Checking labor
  • Setup for test or inspection
  • Test and inspection equipment
  • Quality audits
  • Field testing
Costs of failure of control (Costs of non-conformance) Internal failure costs Arise from defects caught internally and dealt with by discarding or repairing the defective items
  • Scrap
  • Rework
  • Material procurement costs
External failure costs Arise from defects that actually reach customers
  • Complaints in warranty
  • Complaints out of warranty
  • Product service
  • Product liability
  • Product recall
  • Loss of reputation

The central theme of quality improvement is that larger investments in prevention drive even larger savings in quality-related failures and appraisal efforts. Feigenbaum's categorization allows the organization to verify this for itself. When confronted with mounting numbers of defects, organizations typically react by throwing more and more people into inspection roles. But inspection is never completely effective, so appraisal costs stay high as long as the failure costs stay high. The only way out of the predicament is to establish the "right" amount of prevention.

Once categorized, quality costs can serve as a means to measure, analyze, budget, and predict.

Variants of the concept of quality costs include cost of poor quality and categorization based on account type, described by Joseph M. Juran.

Cost area Examples
Tangible costs—factory accounts
  • Materials scrapped or junked
  • Labor and burden on product scrapped or junked
  • Labor, materials, and burden necessary to effect repairs on salvageable product
  • Extra operations added because of presence of defectives
  • Burden arising from excess production capacity necessitated by defectives
  • Excess inspection costs
  • Investigation of causes of defects
Tangible costs—sales accounts
  • Discount on seconds
  • Customer complaints
  • Charges to quality guarantee account
Intangible costs
  • Delays and stoppages caused by defectives
  • Customer good will
  • Loss in morale due to friction between departments

ISO 9004 also accounts for "external assurance" quality costs to account for customer– or government–required certifications (e.g., for UL, RoHS, or even ISO 9000 itself).

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