Total Cost of Quality (TCQ): A Literature Review

Chris Weinkauf

IEE 556 Dr. Shunk

Arizona State University

December 9, 2014

Weinkauf TCQ IEE 556

Table of Contents
Introduction.....................................................................................................3
Definition of TCQ..............................................................................................3
Prevention Costs..............................................................................................5
Appraisal Costs................................................................................................6
Failure Costs....................................................................................................7
Conclusion.......................................................................................................8
Bibliography.....................................................................................................9

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Introduction
Total Cost of Quality (henceforth shortened to TCQ) is an indicator
many businesses use to show the costs directly related to ensuring quality to
their customers. This data can be used in a variety of ways, including project
justification, risk management and tracking. In addition, it is used across a
variety of industries, including healthcare, manufacturing, information
technology, or even the financial industry. However, there are many ways to
calculate this indicator, and each company has their own definition of TCQ.
This paper will go through what makes up the TCQ, as well as its use in
multiple industries and how different sources view TCQ and its use in
multiple industries. To start out, a definition of the parts of TCQ will be
discussed. To ensure easier understanding and flow, the definition is
described using the American Society of Quality definition, a highly
recognized standard for definition of quality worldwide.
Definition of TCQ
ASQ states verbatim that Quality costs are the total of the cost
incurred by: Investing in the prevention of nonconformance to requirements;
appraising a product or service for conformance to requirements; or failing to
meet requirements (ASQ Quality Costs Committee, 1999). This is a
general statement about TCQ, but there are many sections that fall under
each of the three parts that ASQ defines.

Weinkauf TCQ IEE 556

Prevention costs are the first type that ASQ describes. These are any
costs that relate to directly preventing nonconformance. For example, in the
manufacturing sector, there are costs that relate to each part of a product
process, all the way from the initial customer contact to the final delivery of
the product to the customer. Another example of a prevention cost are the
quality administration costs, which include improvements, education, and
planning, since these all go towards improving the quality system in a
preventative way.
The next type of TCQ costs are the appraisal costs, which deal directly
with internal checks and balances relating to quality. This can include
supplier qualifications, labor operation checks, and laboratory tests. These
costs focus mainly on the detection of quality issues, wither in the middle of
a process or after the fact of the process. No costs in this category can
directly prevent quality issues, but they can help detect them soon enough
before a larger quality issue spreads as a result of a leak.
The last type of TCQ costs are the failure costs. These can be split into
two kinds: internal and external. Internal failure costs are those that happen
before a product or service is provided to the customer. In general, internal
costs are less than external, due to the fact that they are kept internal, and
do not harm a companys reputation, they just need to be taken care of
before they grow into external costs. External costs relate to any issue
where the customer finds a non-conformance, and depending on the nonconformance, could result in penalties, recalls, warranty claims, or lost sales.

Weinkauf TCQ IEE 556

For the majority of businesses, external costs can have the most effect, since
loss of business and customer satisfaction can cause a company to fail.
When all of these different types of quality costs are added up, the
indicator, TCQ, is defined for an organization. Now that the TCQ types are
defined, we can look at each type in detail, and compare how different
authors use these costs within different industries.
Prevention Costs
Prevention costs can come in the form of management systems. If
designed and implemented correctly, they can provide a preventive action
framework that can greatly reduce any internal or external costs. Curkovic
(2006) describes total product quality in the case of an environmental
management system. In terms of the preventative costs, he describes that
environmental costs can only be calculated in the manufacturing stage of the
products or process portion of a companys business.
This is a direct contradiction to Radovilsky (1996), who believes that
any type of management system can benefit in any stage of the process. He
then goes on to describe that when companies only focus on manufacturing
costs related to quality, their systems are not able to account for all costs
related to quality in the business, since they do not account for any sort of
design process, sales process, research and development, or marketing. All
portions of the business process have some sort of preventative costs related
to quality of the product or services provided.

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In particular, a manufacturer of products could reduce a large amount

of internal and external failure costs if they increased the preventative costs.
However, it is still important to keep a balance, as the business will
eventually reach a point where more costs in prevention do not directly
correspond to reduced internal and external quality costs.
A takeaway from prevention costs is that unless everyone on all levels
of a company have buy-in to the TCQ philosophy, the preventative actions
(and costs associated) will have no effect on the overall performance of the
business. When there is not enough buy-in, support is lost for the idea of
quality management, and the prevention costs become internal failure
costs, since resources are spent trying to keep preventative actions working
when they truly do not. This is a form of waste and keeps the business from
making any sort of progress, which is the entire philosophy of prevention
costs.
Appraisal Costs
Appraisal costs can directly apply to any process within the scope of
the business. An example of this is within the customer-supplier relationship.
Even though a supplier may be of high quality, unless appraisals are
performed in some form or another, there could be a minor mistake that
ends up to a large external cost (such as a recall). Shortell, et. al (1995)
describe how hospitals would check and make sure that the beds received
from the suppliers were robust enough to hold heavy patients. This appraisal

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helps reduce the external costs in the form of beds failing and giving a
lawsuit.
Appraisals also come in the form of measuring system performance.
Richards (2012) describes how the Korean government first implemented
Total Quality Management, then appraised each sector of the government for
performance to the government standard of the system. This resulted in
elimination of 40 percent of inefficiencies of the quality system within the
government, which also directly resulted in reduced internal failure costs.
This ties into the prevention costs in the way that the appraisals help
employees of all levels in an organization keep quality management in their
minds at all times. However, this can also apply to contractors that work
inside a company, which is why in many standards such as ISO 9001:2008,
contractors are treated as extensions of the hiring organization. This
explains why appraisals need to be performed on all aspects of the business
process. Appraisals are the kinds of actions that determine the detection of
internal and external failures.
Failure Costs
Currently, the majority of companies in process of implementing TCQ
are investigating their current internal and external failure costs, as these are
the most common costs out of the overall spectrum of costs of quality.
Pahdy (2013) suggests that companies define these internal and external
failures first before defining any other type of cost, as they are the easiest

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costs to investigate, and failures can then have preventative actions taken to
reduce the severity or occurrence of the issue.
An internal cost is one that detects a non-conformity before it reaches
the customer. An example of a failure is a part of a process that does not do
what it was designed for, and creates a product that is not up to the
industrial or quality standards of the organization. Depending on how far the
company is into the TCQ philosophy, there may be a lot of failures, but no
actions taken to try and prevent them, or no way to track them if appraisals
are not completed consistently. For the hypothetical process, these internal
costs could disappear with error-proofing, which is a result of preventative
costs. However, these preventative costs can only be found through
experience, or by intense design at the beginning of the new process/product
process. If this step is not completed correctly though, these internal costs
could end up in the customers hands.
The external failures that occur for a business are usually the most
expensive, as they cause distrust with the customers, and the business
usually has to spend resources to directly fix the problem, as well as public
relations to ensure everything is going as it should and explain any mistakes.
A perfect example of this is the Firestone/Ford Explorer tire failures in 2000.
The radial tires created for the Ford Explorer had major tread separation,
which is a failure that could have been eliminated had Ford and Firestone
taken action. Instead, both companies covered up the incriminating
documents, and many consumers lost their lives, and the entire automotive

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industry was held under close scrutiny (even to this day) by the public eye.
The fact is that once a quality cost becomes an external failure cost, the
price that is paid is much greater than the prevention or appraisal costs that
should have been implemented by that point.
Conclusion
Total cost of quality (TCQ) is something that should not be taken lightly.
All businesses in all industries need to ensure that they address all types of
costs within their company, as they could grow out of proportion and
ultimately, destroy the businesss reputation (see Firestone, Exxon, and BP).
All costs of TCQ need to constantly be looked at by all levels of the
organization to ensure proper actions are taken. An organization with buy-in
to TCQ has high-quality, low cost products and services to offer customers
(Harrington, 1999).

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Bibliography
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Contracting, and Quality Costs. Management Science, 46(6), 776-789.
Bourne, L. (2012, September 28). The Cost of Quality. PM Network, 26(9), p.
67.
Curkovic, S., & Sroufe, R. (2007). Total Quality Environmental Management
and Total Cost Assessment: An exploration study. International Journal
of Production Economics(105), 560-579.
Ehrmeyer, S. S., & Laessig, R. H. (1999). Point-of-care testing:
Implementation and practice of cost-effective total quality
management. Accredited Quality Assurance(4), 419-422.
Harrington, H. J. (1999). Performance improvement: A total poor-quality cost
system. The TQM Magazine, 11(4), 221.
He, D. (2010, May). Engineering quality systems: Cost of quality. Modern
Applied Science, 4(5), 102-104.
Murthy, D. N., & Kumar, K. R. (2000). Total product quality. International
Journal of Production Economics(67), 253-267.
Padhy, K. C. (2013). Total Quality Management: An Overview. Srusti
Management Review, 6(1), 119-124.

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Radovilsky, Z. D., Gotcher, J. W., & Slattsveen, S. (1996). Implementing total

quality managment. International Journal of Quality & Reliability
Management, 13(1), 10-23.
Sarkar, B., & Moon, I. (2014). Improved quality, setup cost reduction, and
variable backorder costs in an imperfect production process.
International Journal of Production Economics(155), 204-213.
Shortell, S. M., O'Brien, J. L., Carman, J. M., Foster, R. W., Hughes, E. F.,
Boerstler, H., & O'Connor, E. J. (1995). Assessing the impact of
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