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Qualityforeveryone
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The Four Categories of Quality Cost Explained

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The Four Categories of Quality Cost Explained

Every dollar a plant spends because product might be wrong, or because it was wrong, is a quality cost. Quality engineers sort these dollars into four buckets. Prevention costs are spent to stop defects before they happen: operator training, process design reviews, supplier qualification, preventive maintenance on placement machines. Appraisal costs are spent to find defects: inspection labor, automated optical inspection, functional test, calibration of test equipment.

The other two buckets are failure costs. Internal failure costs arise when a defect is caught inside the plant: scrapped circuit boards, rework to touch up solder joints, retesting after rework, downtime while a line waits for a disposition. External failure costs arise when the defect reaches the customer: warranty replacements, field service visits, return handling, credits, and the cost of investigating complaints.

The split matters because the four buckets behave differently. Prevention and appraisal are spent on purpose and can be planned. Failure costs are losses that show up after the fact and are usually far larger than people assume. Cost of poor quality, or COPQ, is the sum of all four, although many plants track the two failure categories most closely because that is where the money leaks.

Key Concept
Quality costs fall into prevention, appraisal, internal failure, and external failure; the first two are planned spending, the last two are losses.
Practical Example
A printed circuit board assembly plant pulls four line items from last month's ledger. Solder operator certification training: $4,000, which is prevention. Wages for the two inspectors running the optical inspection station: $12,000, which is appraisal. Boards scrapped after failing in-circuit test: $18,500, which is internal failure. Replacement boards shipped under warranty to a customer whose units failed in the field: $27,000, which is external failure. Total of these four items: 4,000 + 12,000 + 18,500 + 27,000 = $61,500, with failure costs making up 45,500 ÷ 61,500 = 74 percent.

Standard Procedure

  1. 1Pull every quality-related cost line from the month's accounts and work orders.
  2. 2Ask of each line: was it spent to prevent, to detect, or because something failed.
  3. 3For failures, ask whether the defect was caught in the plant or at the customer.
  4. 4Assign each line to one of the four categories and total each category.

Lesson Summary

  • ✓Prevention and appraisal are deliberate spending; internal and external failure are losses.
  • ✓Failure costs usually dominate the total, and external failure is the most expensive per defect.

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