Cost of Quality

Quality Costs and Profit

Improved Features Reduced Deficiencies

Premium Price Mkt Share Cycle Time Warranty Waste

Income Profit Cost

1
Cost of Quality

Quality costs can mean two things:

Cost of attaining quality
Cost of poor quality
Can run 10 - 30% of sales or 25 40% of operating expenses

Two classifications and four categories

Conformance
Prevention costs

Appraisal costs

Non conformance
Internal failure costs

External failure costs

2
Cost of Quality

Cost Failure Cost

per
good Costs of appraisal
unit of and Prevention
product
Total Cost

0 100
Quality of Conformance, %

3
Cost of Conformance (Prevention and Appraisal)
Prevention cost activities
Analyzing requirements
Planning for quality
Process control
Quality audits
Conducting supplier evaluations
Attending training

Appraisal cost activities

Inspecting
Testing
Monitoring
Auditing software/hardware processes
Maintaining test machines/equipment
4
Cost of Non-conformance (Internal and External Failure)

Internal failure cost activities

Scrap
Rework
Failure analysis
Re-inspection and retest

External failure cost activities

Paying warranty costs
Fixing problems at site
Cancelled orders
Loss of goodwill