Views on Quality Costs

Traditional View

• Cost of conformance is the cost of achieving specified quality standards.

• Cost of non-conformance is the cost of failure to deliver the required standards of quality.

• Cost of conformance is a discretionary cost which is incurred with the intention of eliminating the cost of internal and external failure.

• The cost of non-conformance on the other hand, can only be reduced by increasing the cost of conformance.


The traditional approach to quality management is that there is an optimal level of quality effort, that minimizes total quality costs, and there is an optimal level of quality effort, that minimizes total quality costs, and there is a point beyond which spending more on quality yield a benefit that is less than the additional cost incurred. Diminishing returns ser in beyond the optimal quality level.


The TQM philosophy is different.

(a) Failure and poor quality are unacceptable. It is inappropriate to think of an optimal level of quality at which some failures will occur, and the inevitability of errors is not something that an organization should accept. The target should be zero defect.

(b) Quality costs are difficult to measure, and failure costs are often seriously underestimated. The real costs of failure include not just the costs of scrapped items and re-working faulty items, but also the management time spent on sorting out problems and the loss of confidence between different parts of the organization whenever faults occur.

(c) A TQM approach does not accept that the prevention costs of achieving zero defects becomes unacceptably high as the quality standard improves and goes above a certain level. In other words, diminishing returns does not necessary set in. If everyone in the organization is involved in improving quality, the cost of continuous improvement need not be high.

(d) If an organization accepts an optimal quality level that it believes will minimize total quality costs, there will be no further challenge to management to improve quality further.


The TQM quality cost model is based on the view that:

(a) Prevention costs and appraisal costs are subject to management influence or control. It is better to spend money on prevention, before failures occur, than on inspection to detect failures after they have happened.

(b) Internal failure costs and external failure costs are the consequences of the efforts spent on prevention and appraisal. Extra effort on prevention will reduce internal failure costs and this in turn will have a knock-on effect, reducing external failure costs as well.


In other words, higher spending on prevention will eventually lead to lower total quality costs.

The emphasis is on “getting things right first time” and “designing in quality” to the product or service.


(source: BPP Learning Media)



***********************