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Appraisal Costs:
The costs associated with measuring / evaluating the quality
of the product / service to ensure conformance to
established requirements. Examples include incoming product
inspection, reviewing applications for errors, and
calibration of measuring and test equipment, among others.
Internal Failure Costs:
The costs resulting from product or service not conforming
to requirements prior to delivery of product or service.
Examples include rework, scrap, re-inspection, and
downgrading, among others.
External Failure Costs:
The costs resulting from product or service not meeting the
requirements after the product has reached the customer or
during the delivery of service. Examples include customer
returns or refusal of service, liability charges, warranty
claims, and complaint processing, among others.
Prevention and appraisal costs can be thought
of as costs associated with the achievement of quality. On
the other hand, failure costs are associated with the
non-achievement of quality. Obviously, failure costs should
be targeted and reduced first, particularly those that come
from external failure. Eliminating non-value-adding
appraisal costs can be targeted next.
While quality costs are out there, most
companies measure and track only the obvious. Generally,
quality costs are either not thought of as such or they are
difficult to capture. In any case, once captured and
tracked, quality costs can be reduced through quality
improvement initiatives. It is important to realize that any
reduction in quality costs means improving pretax profits by
the same amount. |
