The Cost of Quality
Author: Mr D Wilson
Source of document: Open University
Date: 26/11/95 
1. Like all things there is a price to pay for quality. This total cost can be split into two fundamental areas:
- a. Non Conformance. This area covers the price
paid by not having quality systems or a quality
product. Examples of this are:
- (1) Rework. Doing the job over again
because it wasn't right the first time.
(2) Scrap. Throwing away the results of your work because it is not up to the required standard.
(3) Waiting. Time wasted whilst waiting for other people.
(4) Down Time. Not being able to do your job because a machine is broken.
b. Conformance. Conformance is an aim of quality assurance. This aim is achieved at a price. Examples of this are:
- (1) Documentation. Writing work
instructions, technical instructions and
producing paperwork.
(2) Training. On the job training, quality training, etc.
(3) Auditing. Internal, external and extrinsic.
(4) Planning. Prevention, do the right thing first time and poka yoke.
(5) Inspection. Vehicles, equipment, buildings and people.
- (1) Rework. Doing the job over again
because it wasn't right the first time.
2. These two main areas can be split
further as shown below: 
This shows the four segments of quality costs:
a. Prevention. This area covers avoiding defects (poka yoke), planning, preparation, training, preventative maintenance and evaluation.
b. Appraisal. This area covers finding defects by inspection (poka yoke), audit, calibration, test and measurement.
c. Internal Failure. This area covers the costs that are borne by the organisation itself such as scrap, rework, redesign, modifications, corrective action, down time, concessions and overtime.
d. External Failure. This area covers the costs that are borne by the customer such as equipment failure, down time, warranty, administrative cost in dealing with failure and the loss of goodwill.
3. Whilst aiming to reduce failure through
appraisal and prevention it must be clear that these also
cost as shown below: 
4. The graph shows that there is a minimum Total Quality cost, which is a combination of prevention, appraisal and failure. Reducing any of these reduces the total. The key to minimum cost, is striking the correct balance between the three.
5. Clearly prevention reduces both appraisal and failure costs, however eventually the cost of prevention itself starts to increase the total cost and so this must be controlled and set at an effective level.
6. The next graph shows that when Total
Quality is initially introduced into an organisation, there
are huge savings that can be made: 
7. However when Total Quality is introduced
into a well organised system, that is using inspection as a
major standard setter, then the benefits are not so dramatic.
The main benefits to be achieved are within management. The
fat of the organisation can then be cut. 
8. The graph below shows the four stages of
Total Quality acceptance / implementation and what happens
theoretically to the four segments of the cost of quality: 
9. The minimum total cost, is shown below
as being achieved at 98% perfection. This percentage is also
known as best practice. That is, the cost of achieving an
improvement outweighs the benefits of that improvement. 