question 2

identify and discuss four major costs of quality

When it comes to Quality and Cost, there are 4 different Categories that can be utilized to
capture your quality related costs, these are Prevention Cost, appraisal cost, internal failure cost
and external failure costs. Prevention costs are costs associated with activities specifically
designed to prevent poor quality in products. Appraisal Cost are costs associated with activities
specifically designed to measure, inspect, evaluate or audit products to assure conformance to
quality requirements. Internal Failure Cost involves costs incurred when a product fails to
conform to a quality specification before shipment to a customer. External Failure Cost – costs
incurred when a product fails to conform to a quality specification after shipment to a customer.

Prevention Cost

Prevention Costs are those costs or activities that are specifically designed to prevent poor
quality in products. These costs ensure that product is built right the first time by preventing or
reducing errors from occurring. Prevention costs should be viewed as an investment in cost-
avoidance. Prevention costs are incurred to prevent or avoid quality problems. These costs are
associated with the design, implementation, and maintenance of the quality management system.
They are planned and incurred before actual operation, and they could include: Product or
service requirements: Establishment of specifications for incoming materials, processes, finished
products, and services Quality planning: Creation of plans for quality, reliability, operations,
production, and inspection, Quality assurance: Creation and maintenance of the quality system
and Training: Development, preparation, and maintenance of programs avoiding a non-
conformance you’ll eliminate all the waste associated with that non-conformance.
These include the wasted material (scrap/rework/etc), the man-power required to investigate and
disposition the non-conforming material, and the lost opportunity cost/equipment capacity
associated with your time & equipment and many more hidden costs.

Appraisal Cost

Appraisal costs are associated with any activity specifically designed to measure, inspect,
evaluate or audit products to assure conformance to quality requirements. These are costs
incurred to check and verify that product was built right the first time.

Appraisal costs are also considered an investment, not a loss, because you’re assuring that
quality specifications have been met, and you’re preventing unnecessary failure costs, et cetera.
examples of activities that are generally classified as Appraisal activities: R,eceiving Inspection,
routine supplier survey, equipment setup inspection and testing and cetera. Appraisal costs are
associated with measuring and monitoring activities related to quality. These costs are associated
with the suppliers’ and customers’ evaluation of purchased materials, processes, products, and
services to ensure that they conform to specifications. Appraisal costs are associated with
measuring and monitoring activities related to quality. These costs are associated with the
suppliers’ and customers’ evaluation of purchased materials, processes, products, and services to
ensure that they conform to specifications.

They could include:

Verification: Checking of incoming material, process setup, and products against agreed
specification Quality audits: Confirmation that the quality system is functioning correctly,
Supplier rating: Assessment and approval of suppliers of products and services

Internal Failure Cost

Internal Failure Costs are any cost incurred due to the failure of a product to meet a customer
requirement where the non-conformance was detected prior to shipment to the customer. These
costs are incurred when product is not built right the first time, prior to delivery to the customer.
These costs are a financial loss. It’s important to remember that the further along in the operating
process that a failure is discovered the more expensive it is to correct.
As these types of failures are identified, either internally through Appraisal or externally by the
customer, corrective action should be taken to eliminate the causes of these failures, see below
for a list of Failure Costs: such as scrap, rebuilding or replacing equipment tooling.

Internal failure costs are incurred to remedy defects discovered before the product or service is
delivered to the customer. These costs occur when the results of work fail to reach design quality
standards and are detected before they are transferred to the customer. They could include:

Waste: Performance of unnecessary work or holding of stock as a result of errors, poor

organization, or communication

Scrap: Defective product or material that cannot be repaired, used, or sold

Rework or rectification: Correction of defective material or errors

Failure analysis: Activity required to establish the causes of internal product or service failure

External Failure Cost

External Failure Costs are any cost incurred due to the failure of a product to meet a customer
requirement where the non-conformance was detected after shipment to the customer.
External Failure Costs are, by far, the most expensive category of Quality Cost.Because the non-
conformance went undetected, your company now has paid to package and ship this defect to a
customer, which will only result in dissatisfaction and return.

If the non-conformance had been detected in the process, it could have been sorted, scrapped or
re-worked prior to shipment.These failures occur because the Prevention activities and
Appraisal process (Inspection & Testing) did not detect the error before shipment which now has
resulted in customer dissatisfaction and additional costs.

Failure Costs can also be viewed as a penalty for poor quality. This penalty can be avoided
through prevention and appraisal. High risk or frequently occurring External Failures can also
 result in very costly actions like Recalls & Legal situations, see below for a list of external
failure costs such as waranty costs.

External failure costs are incurred to remedy defects discovered by customers. These costs occur
when products or services that fail to reach design quality standards are not detected until after
transfer to the customer. They could include:

 Repairs and servicing: Of both returned products and those in the field
 Warranty claims: Failed products that are replaced or services that are re-performed under a
guarantee
 Complaints: All work and costs associated with handling and servicing customers’ complaints
 Returns: Handling and investigation of rejected or recalled products, including transport costs

Internal failure costs

External failure costs