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Chapter 17 Quality management 511
Prevention costs
Appraisal costs
Internal failure costs
External failure costs
TQM means all costs of quality are considered
The costs of controlling quality may not be small, whether the responsibility lies with each
individual or a dedicated quality control department. It is therefore necessary to examine
all the costs and benefits associated with quality (in fact ‘cost of quality’ is usually taken to
refer to both costs and benefits of quality). These costs of quality are usually categorized as
prevention costs, appraisal costs, internal failure costs and external failure costs.
Prevention costs are those costs incurred in trying to prevent problems, failures and errors
from occurring in the first place. They include such things as:
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identifying potential problems and putting the process right before poor quality occurs;
designing and improving the design of products and services and processes to reduce
quality problems;
training and development of personnel in the best way to perform their jobs;
process control through SPC.
Appraisal costs are those costs associated with controlling quality to check to see if problems
or errors have occurred during and after the creation of the product or service. They might
include such things as:
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the setting up of statistical acceptance sampling plans;
the time and effort required to inspect inputs, processes and outputs;
obtaining processing inspection and test data;
investigating quality problems and providing quality reports;
conducting customer surveys and quality audits.
Internal failure costs are failure costs associated with errors which are dealt with inside the
operation. These costs might include such things as:
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the cost of scrapped parts and material;
reworked parts and materials;
the lost production time as a result of coping with errors;
lack of concentration due to time spent troubleshooting rather than improvement.
External failure costs are those which are associated with an error going out of the operation
to a customer. These costs include such things as:
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loss of customer goodwill affecting future business;
aggrieved customers who may take up time;
litigation (or payments to avoid litigation);
guarantee and warranty costs;
the cost to the company of providing excessive capability (too much coffee in the pack or
too much information to a client).
The relationship between quality costs
In traditional quality management it was assumed that failure costs reduce as the money
spent on appraisal and prevention increases. Furthermore, it was assumed that there is
an optimum amount of quality effort to be applied in any situation, which minimizes the
total costs of quality. The argument is that there must be a point beyond which diminishing
returns set in – that is, the cost of improving quality gets larger than the benefits which it
brings. Figure 17.7(a) sums up this idea. As quality effort is increased, the costs of providing
the effort – through extra quality controllers, inspection procedures, and so on – increases
proportionally. At the same time, however, the cost of errors, faulty products, and so on,
decreases because there are fewer of them. However, TQM proponents believe that this logic
is flawed. First, it implies that failure and poor quality are acceptable. Why, TQM proponents
argue, should any operation accept the inevitability of errors? Some occupations seem to
be able to accept a zero-defect standard. No one accepts that pilots are allowed to crash a
certain proportion of their aircraft, or that nurses will drop a certain proportion of the babies