Mohammad Zaid

Cost of Quality
The history of quality costs dates back to the first addition of Jurans QC Handbook in 1951. Today, quality cost accounting systems are part of every modern organizations quality improvement strategy. Quality const system help management plan for quality improvement by identifying opportunities for greatest return on investment. However, the quality managers should keep in mind that quality costs address only half of the quality equation. The quality equation states that quality consists of doing the right things and not doing the wrong things. Doing the right things means including product and service features that satisfy or delight the customer. Not doing the wrong things means avoiding defects and other behaviors that cause customer dissatisfaction. A problem exists with the very name cost of quality. By using this terminology we automatically create the impression that quality is a cost. However, our modern understanding makes it clear that quality is not a cost. Quality represents a driver that produces higher profits through lower costs and the ability to command a premium price in the market place. The fundamental principle of the cost of quality is that any cost that would not have been expended if quality were perfect is a cost of quality. This includes such obvious costs as scrap and rework, but it also includes many costs that are far less obvious, such as the cost of reordering to replace defective material. Specifically, quality costs are a measure of the costs specifically associated with the achievement or non-achievement of product or service quality- including all product and service requirements established by the company and its contracts with customers and society. Requirements include market specifications, end-product and process specifications, purchase orders, engineering drawings, company procedures, operating instructions, professional or industry standards, government regulation or any other document or customer needs that can affect the definition of product or service. More specifically the quality costs are the total of the cost incurred by. a) Investing in the prevention of non-conformances to requirement; b) appraising a product or service for conformance to requirements; and c) failure to meet requirements.

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Mohammad Zaid

Prevention Costs
The cost of all activity specifically designed to prevent poor quality in product or services. Examples are the cost of new product review, quality planning, supplier capability surveys, process capability evaluations, quality improvement team meetings, quality improvements projects, quality education and training.

Appraisal Costs
The cost associated with measuring, evaluating or auditing product and services to assure conformance to quality standards and performance requirements. These include the incoming and source inspection/test of purchased material, in process and final Page 2 of 3

Mohammad Zaid

inspection/test, product, process, or service audits, calibration of measuring and test equipment, and cost of associated supplies and materials.

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

Internal Failure Costs

Failure costs occurring prior to delivery or shipment of the product, and during or after furnishing of a service, to the customer. Examples are the cost of scrap, rework, reinspection, retesting, material review, and down grading.

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 cost of processing customer complaints, customer returns, warranty claims, and product recalls.

Total Quality Costs

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

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