Table of Contents

Cost of Quality | Categories and Elements Of Quality Cost

Quality costs are defined are those costs associated with the non-achievement of product or service quality as defined by the requirements established by the organization and its contracts with customers and society. Simply stated, quality cost is the cost of poor products or services.

CATEGORIES & ELEMENTS OF QUALITY COST

I. Preventive Cost Category

1. Marketing/Consumer/User:
Costs are incurred in the accumulation and continued evaluation of customer and user quality needs and perceptions affecting user satisfaction with the organizations product or service.

2. Product/Service/Design Development:
Costs are incurred to translate customer and user needs in to reliable quality standards and requirements and to manage the quality of new product or service.

3. Purchasing:
Costs are incurred to assure conformance requirements of supplier parts, materials or processes and to minimize the impact of supplier non conformance on the quality of delivered products or services.

4. Operations (Manufacturing or service):
Costs are incurred in assuring the capability and readiness of operations to meet quality standards and requirements and to impart quality education to operating personnel.

5. Quality Administration:
Costs are incurred in the overall administration of the quality management function.

II. Appraisal Cost Category

1. Purchasing Appraisal Costs:
Purchasing appraisal costs can generally be considered the costs incurred for the inspection and test of purchased supplies or service to determine acceptability to use.

2. Operations (Manufacturing or service) Appraisal Costs:
Operations appraisal costs can generally be considered the costs incurred for the test or audit required to determine and assure the acceptability of product or service.

3. External Appraisal Costs:
External appraisal costs are incurred for field set up or installation and check out for the acceptance of customers.

4. Review of Test & Inspection:
Costs are incurred for regular reviewing inspection and test data, prior to release of the product for shipment.

5. Miscellaneous Quality Evaluations:
Costs involved in quality audits to assure continued ability to provide acceptable support to the production process.

III. Internal Failure Cost Category

1. Product or Service Design Failure Costs (Internal):
Design failure costs are the unplanned costs that are incurred because of inherent design inadequacies.

2. Purchasing Failure Costs:
Costs which are incurred due to the rejects of purchased items.

3. Operations (Product or Service) Failure Costs:
The costs associated with nonconforming product or service discovered during the operations process. It is categorized in to three distinct areas: material review and corrective action, rework or repair costs and scrap costs.

IV. External Failure Cost Category

1. Complaint Investigations of Customer or User Service:
It includes the total cost of investigating, resolving and responding to individual customer and user complaints.

2. Returned Goods:
Costs incurred in evaluating, repairing and replacing goods.

3. Retrofit and Recall costs
Retrofit and recall costs are those costs required to modify or update products or field service facilities to a new design change level, based on major redesign due to design deficiencies.

4. Warranty Claims
Warranty costs include the total costs of claims paid to the customer or user after acceptance to cover expenses, including repair costs, such as removing defective hardware from a system, or cleaning costs, due to food or chemical service accident.

5. Liability Costs
Liability costs are organization-paid costs due to liability claims, including the cost of product or service liability insurance.

6. Penalties
Penalty costs are those costs incurred because less than full product or service performance is achieved as required by contracts with customers or by government rules and regulations.

7. Customer or user good will
This category involves costs incurred that customers are not satisfied with quality of delivered product or service because the customer’s quality expectations were greater than the quality they received.

8. Lost Sales
Lost sales comprise the value of the contribution to profit that is lost due to sales reduction because of quality problems.