Cost of Quality Examples

An excerpt from The Handbook for Quality Management (2013, McGraw-Hill) by Paul Keller and Thomas Pyzdek

Table 8.2. Cost of Quality Examples. (From Principles of Quality Costs, John T. Hagan, editor, Milwaukee, WI: ASQ Quality Press, appendix B.

I. Prevention costs—Costs incurred to prevent the occurrence of non-conformances in the future, such as*

A. Marketing/customer/user

1.   Marketing research

2.   Customer/user perception surveys/clinics

3.   Contract/document review

B. Product/service/design development

1.   Design quality progress reviews

2.   Design support activities

3.   Product design qualification test

4.   Service design qualification

5.   Field tests

C. Purchasing

1.   Supplier reviews

2.   Supplier rating

3.   Purchase order tech data reviews

4.   Supplier quality planning

D. Operations (manufacturing or service)

1.   Operations process validation

1.   Operations quality planning

2.   a. Design and development of quality measurement and control equipment

2.   Operations support quality planning

3.   Operator quality education

4.   Operator SPC/process control

E. Quality administration

1.   Administrative salaries

2.   Administrative expenses

3.   Quality program planning

4.   Quality performance reporting

5.   Quality education

6.   Quality improvement

7.   Quality audits

8.   Other prevention costs

II. Appraisal costs—Costs incurred in measuring and controlling current production to assure conformance to requirements, such as

A. Purchasing appraisal costs

1.   Receiving or incoming inspections and tests

2.   Measurement equipment

3.   Qualification of supplier product

4.   Source inspection and control programs

B. Operations (manufacturing or service) appraisal costs 1. Planned operations inspections, tests, audits

a. Checking labor

b. Product or service quality audits

c. Inspection and test materials

1.   Set-up inspections and tests

2.   Special tests (manufacturing)

3.   Process control measurements

4.   Laboratory support

1.   Measurement equipment

1.   Depreciation allowances

2.   Measurement equipment expenses

3.   Maintenance and calibration labor

5.   Outside endorsements and certifications

C. External appraisal costs

1.   Field performance evaluation

2.   Special product evaluations

3.   Evaluation of field stock and spare parts

D. Review of tests and inspection data

E. Miscellaneous quality evaluations

III. Internal failure costs—Costs generated before a product is shipped as a result of non-conformance to requirements, such as

A. Product/service design failure costs (internal)

1.   Design corrective action

2.   Rework due to design changes

3.   Scrap due to design changes

B. Purchasing failure costs

1.   Purchased material reject disposition costs

2.   Purchased material replacement costs

3.   Supplier corrective action

4.   Rework of supplier rejects

5.   Uncontrolled material losses

C. Operations (product or service) failure costs

1. Material review and corrective action costs

a. Disposition costs

b. Troubleshooting or failure analysis costs (operations)

c. Investigation support costs

d. Operations corrective action

2. Operations rework and repair costs

a. Rework

b. Repair

3. Re-inspection / retest costs

4. Extra operations

5. Scrap costs (operations)

6. Downgraded end product or service

7. Internal failure labor losses

D. Other internal failure costs

IV. External failure costs—Costs generated after a product is shipped as a result of non-conformance to requirements, such as

A. Complaint investigation/customer or user service

B. Returned goods

C. Retrofit costs

D. Recall costs

E. Warranty claims

F. Liability costs

G. Penalties

H. Customer/user goodwill

I. Lost sales

J. Other external failure costs

See also: Use of Quality Costs for continuation; Cost of Quality Overview for related links.

Learn more about the Quality Management tools for process excellence in The Handbook for Quality Management (2013, McGraw-Hill) by Paul Keller and Thomas Pyzdek or their online Quality Management Study Guide.