Costs of Quality & Quality Reports

“Concern for good quality saves money, Poor quality costs money”

Costs of quality can be analyzed into prevention, appraisal, internal failure and external failure costs and should be detailed in a cost of quality report.

Cost of quality is the difference between the actual cost of producing, selling and supporting products or services and the equivalent costs if there were no failures during production or usage.

Cost of quality can be analyzed into:

• Cost of prevention – the costs incurred prior to or during production in order to prevent substandard or defective products or services from being produced.

• Cost of appraisal – cost incurred in order to ensure that outputs produced meet required quality standards.

• Cost of internal failure – the cost arising from inadequate quality which are identified before the transfer of ownership from supplier to purchaser.

• Cost of external failure – the cost arising from inadequate quality discovered after the transfer of ownership from supplier to purchaser.

External failure costs are the costs of failing to deliver a quality product externally. The sum of internal failure costs, prevention and appraisal costs is the cost of failing to deliver a quality product internally.



Examples of Quality-related Cost

(1) Prevention costs
• Quality engineering,
• Design/development of quality control/inspection equipment,
• Maintenance of quality control/inspection equipment.
• Administration of quality control,
• Training in quality control


(2) Appraisal costs
• Acceptance testing,
• Inspection of goods inwards.
• Inspection costs of in-house processing.
• Performance testing

(3) Internal failure costs
• Failure analysis,
• Re-inspection costs.
• Losses from failure of purchased items.
• Losses due to lower selling prices for sub-quality goods.
• Costs of reviewing product specifications after failures

(4) External failure costs
• Administration of customer complaints section
• Costs of customer service section
• Product liability costs
• Costs of repairing products returned from customers
• Costs of replacing items due to sub-standard products/marketing errors


(source: BPP Learning Media)



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