COST OF QUALITY

COST OF QUALITY

Is the sum of costs incurred by an organization in

preventing poor quality.

The purpose of TQM is to satisfy customers in the

most economical way. This means reducing
expenditure by eliminating wastes through
systematic quality management approach.
 PAF Model 3 Types of
Quality Costs
1. Prevention Costs

2. Appraisal Costs

3. Failure Costs
 Prevention Costs

Are the planned costs incurred by an organization to

ensure that there are no defects in any of the stages
like design, development, production and delivery of
the product or service.
Costs that are incurred to reduce inspection and
failure costs.
Examples are education and training of employees,
process improvement, process control, market
research, field testing, preventive maintenance,
instruments calibration, audits, etc.
 Appraisal Costs

Are incurred in verifying, checking or evaluating a

product or service at various stages during
manufacturing or delivery.

They are incurred due to the lack of confidence in

the quality of the product or service due to incoming
material or to the process.

Includes inspection, product audit, supplier

evaluation, etc.
 Failure Costs

Incurred by an organization because the product or

service did not meet the expected requirements and
the product had to be fixed or replaced or the service
had to be repeated.

Are incurred to the failure of the organization to

control defects.

Defective products lead to loss of reputation and

customer loyalty.
Classification of Failure Costs

A. Internal failure costs takes place before the

product is delivered to the customers and are due to
defective processes
Rejected material supplied by the vendor
Rejected pieces of sub-assemblies
Rejected products at final inspection
Scrap on account of poor workmanship
Overtime due to non-conforming products
Classification of Failure Costs

B. External failure costs takes place after delivery of

the product to the customers
Warranty costs
Replacement of products
Costs incurred to travel to customer site for repair
Cost of returned products
Cost of handling customer complaints
Cost of customer follow up and field service
Reducing Prevention Costs

Prevention costs are necessary costs

Prevention costs can be reduced if an organization

uses a quality manual containing policies and
procedures which all employees must strictly adhere
to
 Progressive Reduction of
Appraisal Costs
Initial inspection is necessary to gain confidence.

Example: 100% inspection if an employee is new or

there is a new supplier of materials. Later on,
inspection can be done on a sampling basis only.
 Progressive Reduction of
Appraisal Costs
Initial inspection is necessary to gain confidence.

Example: 100% inspection if an employee is new or

there is a new supplier of materials. Later on,
inspection can be done on a sampling basis only.
Reduction of Failure Costs

Delivery of a product with defects is a total waste.

Doing it right the first time and every time will

reduce, if not totally eliminate failure costs.

A proper system should system on all processes

should be used.
 Hidden Costs

Costs which cannot be identified immediately.

Examples are lost reputation costs and customer

dissatisfaction costs.

Hidden costs can only be eliminated if external

failures are eliminated.
Jurans Model of Optimum
Quality
COQ Poor Quality vs. Good
Quality