The cost of poor quality

It’s a term that's widely used – and widely misunderstood.

• The "cost of quality" isn't the price of creating a quality product or service. It's the cost of NOT creating a quality product or service.
  Every time work is redone, the cost of quality increases. Obvious examples include:
  The reworking of a manufactured item.
  The retesting of an assembly.
  The rebuilding of a tool.
  The correction of a bank statement.
  The reworking of a service, such as the reprocessing of a loan operation or the replacement of a food order in a restaurant.
  In short, any cost that would not have been expended if quality were perfect contributes to the cost of quality.
  
• Quality Costs—general description
  Prevention Costs
  The costs of all activities specifically designed to prevent poor quality in products or services.
  Examples are the costs of:
  New product review
  Quality planning
  Supplier capability surveys
  Process capability evaluations
  Quality improvement team meetings
  Quality improvement projects
  Quality education and training
  
• Appraisal Costs
  The costs associated with measuring, evaluating or auditing products or services to assure conformance to quality standards and performance requirements.
  These include the costs of:
  · Incoming and source inspection/test of purchased material
  · In-process and final inspection/test
  · Product, process or service audits
  · Calibration of measuring and test equipment
  

Failure Costs
The costs resulting from products or services not conforming to requirements or customer/user needs. Failure costs are divided into internal and external failure categories.

• Internal Failure Costs
  Failure costs occurring prior to delivery or shipment of the product, or the furnishing of a service, to the customer.
  Examples are the costs of:
  Scrap
  Rework
  Re-inspection
  Re-testing
  Material review
  Downgrading
  

External Failure Costs
Failure costs occurring after delivery or shipment of the product — and during or after furnishing of a service — to the customer.
Examples are the costs of:
Processing customer complaints
Customer returns
Warranty claims


Total Quality Costs:
The sum of the above costs. This represents the difference between the actual cost of a product or service and what the reduced cost would be if there were no possibility of substandard service, failure of products or defects in their manufacture.