Quality costs

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In process improvement efforts, quality costs or cost of quality is a means to quantify the
total cost of quality-related efforts and deficiencies. It was first described by Armand V.
Feigenbaum in a 1956 Harvard Business Review article.[1]
Prior to its introduction, the general perception was that higher quality requires higher costs,
either by buying better materials or machines or by hiring more labor.[2] Furthermore, while
cost accounting had evolved to categorize financial transactions into revenues, expenses, and
changes in shareholder equity, it had not attempted to categorize costs relevant to quality,
which is especially important given that most people involved in manufacturing never set
hands on the product.[3] By classifying quality-related entries from a company's general
ledger, management and quality practitioners can evaluate investments in quality based on
cost improvement and profit enhancement.[4]

Definitions
Feigenbaum defined the following quality cost areas:[5]
Cost area
Costs of control

Description

(Costs of
conformance)

Prevention
costs

Examples

Quality planning

Statistical process
control

Investment in qualityrelated information

systems

Quality training and

workforce
development

Product-design
verification

Systems development
and management

Test and inspection of

purchased materials

Arise from efforts to keep

defects from occurring at
all

Appraisal

Arise from detecting

costs

defects via inspection, test,

audit

Internal

Acceptance testing

Inspection

Testing

Checking labor

Setup for test or

inspection

Test and inspection

equipment

Quality audits

Field testing

Arise from defects caught

Scrap

internally and dealt with by

Rework

Material procurement
costs

Complaints in
warranty

Complaints out of
warranty

Product service

Product liability

Product recall

Loss of reputation

failure costs discarding or repairing the

defective items

Costs of failure of
control (Costs of
non-conformance)
External

Arise from defects that

failure costs actually reach customers

The central theme of quality improvement is that larger investments in prevention drive even
larger savings in quality-related failures and appraisal efforts. Feigenbaum's categorization
allows the organization to verify this for itself.[6] When confronted with mounting numbers of
defects, organizations typically react by throwing more and more people into inspection roles.

But inspection is never completely effective, so appraisal costs stay high as long as the failure
costs stay high. The only way out of the predicament is to establish the "right" amount of
prevention.
Once categorized, quality costs can serve as a means to measure, analyze, budget, and
predict.[7]
Variants of the concept of quality costs include cost of poor quality and categorization based
on account type, described by Joseph M. Juran.[8]
Cost area

Tangible costsfactory
accounts

Tangible costssales
accounts

Intangible costs

Examples

Materials scrapped or junked

Labor and burden on product scrapped or junked

Labor, materials, and burden necessary to effect repairs on

salvageable product

Extra operations added because of presence of defectives

Burden arising from excess production capacity

necessitated by defectives

Excess inspection costs

Investigation of causes of defects

Discount on seconds

Customer complaints

Charges to quality guarantee account

Delays and stoppages caused by defectives

Customer good will

Loss in morale due to friction between departments

References
1.
Feigenbaum, Armand V. (NovemberDecember 1956), "Total Quality Control", Harvard
Business Review, 34 (6)
Feigenbaum, Armand V. (1991), Total Quality Control (3 ed.), New York, New York:
McGraw-Hill, p. 109, ISBN 978-0-07-112612-0, OCLC 71640975
Crosby, Philip B. (1979), Quality Is Free, New York, New York: McGraw-Hill, p. 121,
ISBN 978-0-07-014512-2, OCLC 3843884
Arnold, Kenneth L. (1994), The Manager's Guide to ISO 9000, New York: Free Press,
p. 244, ISBN 978-0-02-901035-8, OCLC 29845272, The main objective of quality cost
reporting is to provide means for evaluating effectiveness and establishing the basis for
internal improvement programmes.
Feigenbaum, Armand V. (1991), Total Quality Control (3 ed.), New York, New York:
McGraw-Hill, p. 111, ISBN 978-0-07-112612-0, OCLC 71640975
Feigenbaum, Armand V. (1991), Total Quality Control (3 ed.), New York, New York:
McGraw-Hill, p. 113, ISBN 978-0-07-112612-0, OCLC 71640975
Feigenbaum, Armand V. (1991), Total Quality Control (3 ed.), New York, New York:
McGraw-Hill, pp. 130131, ISBN 978-0-07-112612-0, OCLC 71640975
Juran, Joseph M. (1962), Quality Control Handbook (2 ed.), New York, New York:
McGraw-Hill, pp. 138139, OCLC 64292499
Arnold, Kenneth L. (1994), The Manager's Guide to ISO 9000, New York: Free Press,
pp. 244245, ISBN 978-0-02-901035-8, OCLC 29845272, External assurance quality costs
are those costs relating to the demonstration and proof required as objective evidence by
customers, including particular and additional quality assurance provisions, procedures,
data, demonstration tests, and assessments (e.g., the cost of testing for specific safety
characteristics by recognized independent testing bodies.
Crosby, Philip B. (1979), Quality Is Free, New York, New York: McGraw-Hill, p. 123,
ISBN 978-0-07-014512-2, OCLC 3843884
Crosby, Philip B. (1979), Quality Is Free, New York, New York: McGraw-Hill, p. 122,
ISBN 978-0-07-014512-2, OCLC 3843884