What are the five major cost categories related to quality? Briefly describe each category.
1 Prevention cost: The cost of planning and executing a project so that it is error-free or within an acceptable error range. Preventive actions such as training, detailed studies related to quality, and quality surveys of suppliers and subcontractors fall under this category. Detecting defects in information systems during the early phases of the systems development life cycle is much less expensive than during the later phases. One hundred dollars spent refining user requirements could save millions by finding a defect before implementing a large system. The Year 2000 (Y2K) issue provides a good example of these costs. If organizations had decided during the 1960s, 1970s, and 1980s that all dates would need four characters to represent the year instead of two characters, they would have saved billions of dollars.
2 Appraisal cost: The cost of evaluating processes and their outputs to ensure that a project is error-free or within an acceptable error range. Activities such as inspection and testing of products, maintenance of inspection and test equipment, and processing and reporting inspection data all contribute to appraisal costs of quality.
3 Internal failure cost: A cost incurred to correct an identified defect before the customer receives the product. Items such as scrap and rework, charges related to late payment of bills, inventory costs that are a direct result of defects, costs of engineering changes related to correcting a design error, premature failure of products, and correcting documentation all contribute to internal failure cost.
4 External failure cost: A cost that relates to all errors not detected and not corrected before delivery to the customer. Items such as warranty cost, field service personnel training cost, product liability suits, complaint handling, and future business losses are examples of external failure costs.
5 Measurement and test equipment costs: The capital cost of equipment used to perform prevention and appraisal activities.