Categorising Quality Costs

Category	What it covers
Prevention	Quality planning, design review, failure mode analysis, capability studies, supplier development, training, error-proofing, process improvement
Appraisal	Incoming, in-process and final inspection, testing, audits, calibration, measurement system analysis, inspector time
Internal failure	Scrap, rework, re-inspection, downgrading, downtime from defects, sorting, investigation, expedited replacement production
External failure	Warranty, returns, credits, complaint handling, field service, recalls, penalties, legal costs, lost customers

Cost of poor quality

Internal and external failure together constitute the cost of poor quality — money spent purely because something was not right first time. Prevention and appraisal are costs of achieving quality, and only one of them is genuinely an investment.

Reading the pattern

Organisations early in their quality maturity show high failure costs and high appraisal costs, with almost nothing in prevention — they inspect heavily and still ship defects. As prevention investment rises, failure costs fall substantially and appraisal costs can then fall too, because less inspection is needed when the process is capable.

The characteristic mistake is cutting prevention when costs are under pressure. It shows an immediate saving, and failure costs rise some months later in a different part of the accounts, where the connection is not made.