Quality costs

The concept of quality costs 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. 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.

Feigenbaum defined the following quality cost areas^[3]:

Cost area		Description	Examples
Costs of control (Costs of conformance)	Prevention costs	Arise from efforts to keep defects from occurring at all	Quality planning Statistical process control Investment in quality-related information systems Quality training and workforce development Product-design verification Systems development and management
	Appraisal costs	Arise from detecting defects via inspection, test, audit	Test and inspection of purchased materials Acceptance testing Inspection Testing Checking labor Setup for test or inspection Test and inspection equipment Quality audits Field testing
Costs of failure of control (Costs of non-conformance)	Internal failure costs	Arise from defects caught internally and dealt with by discarding or repairing the defective items	Scrap Rework Material procurement costs
	External failure costs	Arise from defects that actually reach customers	Complaints in warranty Complaints out of warranty Product service Product liability Product recall Loss of reputation

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.^[4] 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.^[5]

Variants of the concept of quality costs include cost of poor quality and categorization based on account type, described by Joseph M. Juran. ^[6]

Cost area	Examples
Tangible costs—factory accounts	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
Tangible costs—sales accounts	Discount on seconds Customer complaints Charges to quality guarantee account
Intangible costs	Delays and stoppages caused by defectives Customer good will Loss in morale due to friction between departments

Juran also contributed the concepts of fitness for use and grades of quality. Fitness for use entails meeting or exceeding customers' expectations. Other authors with a strong influence on the topic of the Cost of Quality include Philip B. Crosby and W. Edwards Deming. Crosby developed the notion of zero defects - do it right the first time. Deming focused on management and process as the solution to quality and put forth that 85% of the cost of quality is a management problem. ^[7]

See also

• Cost of poor quality
• Gold in the mine
• Highest quality is lowest cost
• Project triangle

References

1. ^ Feigenbaum, Armand V. (November–December 1956), "Total Quality Control", Harvard Business Review 34 (6) 
2. ^ Feigenbaum, Armand V. (1991), Total Quality Control (3 ed.), New York, New York: McGraw-Hill, p. 109, ISBN 9780071126120, OCLC 71640975 
3. ^ Feigenbaum, Armand V. (1991), Total Quality Control (3 ed.), New York, New York: McGraw-Hill, p. 111, ISBN 9780071126120, OCLC 71640975 
4. ^ Feigenbaum, Armand V. (1991), Total Quality Control (3 ed.), New York, New York: McGraw-Hill, p. 113, ISBN 9780071126120, OCLC 71640975 
5. ^ Feigenbaum, Armand V. (1991), Total Quality Control (3 ed.), New York, New York: McGraw-Hill, pp. 130–131, ISBN 9780071126120, OCLC 71640975 
6. ^ Juran, Joseph M. (1962), Quality Control Handbook (2 ed.), New York, New York: McGraw-Hill, pp. 1–38 – 1–39, OCLC 64292499 
7. ^ Heldman, Kim (2005), Project Management Professional Study Guide (3 ed.), Hoboken, New Jersey: Wiley Publishing, p. 147, ISBN 9780782136012, OCLC 62332559