This document discusses quality costs, which are the costs incurred by an organization to prevent poor quality. It describes the components of quality costs using the PAF model: prevention costs include training and process improvement; appraisal costs are for inspections; and failure costs arise from internal defects and external customer issues. Failure costs are further broken down into internal costs like rework and external costs like warranty repairs. The document recommends reducing costs by carefully planning prevention activities, establishing quality systems, utilizing inspection data to improve processes and control quality, and following total quality management principles to reduce rework and defects.

1. QUALITY COST
THARANI RAM,
MHA,
COIMBATORE.

2. COST OF QUALITY
• Cost Of Quality (COQ) is the sum of costs incurred by an organization in
preventing poor quality.
PAF Model

3. PREVENTION COST
• The prevention costs are the planned cost incurred by an organization to
ensure that no defects occur in any of the stages.
• The prevention costs are incurred to reduce the inspection as well as failure
costs.
• Preventive costs includes education and training of employees, process
improvement efforts, process control, market research, product qualification,
field testing, preventive maintenance, audits, quality assurance staff, etc.

4. APPRAISAL COST
• The appraisal costs are incurred in verifying, checking or evaluating a
product or service at various stages during manufacturing or delivering.
• Appraisal costs include incoming inspection, internal product audit,
supplier evaluation and audit, inspection during the process and final
inspection.

5. FAILURE COST
• Failure costs are incurred by an organization because the product or
service did not meet the expected requirements and the product had to be
fixed or replaced or the service had to be repeated.
FAILURE
COST
INTERNAL
FAILURE
COST
EXTERNAL
FAILURE
COST

6. INTERNAL FAILURE COST
• Include costs of failure that takes place before the product is delivered to
the customers.
• Internal failure cost accounts are,
Rejected material, supplied by vendor
Rejected pieces of sub-assemblies
Rejected products at final inspection
Scrap on account of poor workmanship
Overtime due to non-conforming products

7. EXTERNAL FAILURE COST
• Cost of failure of the product after its delivery to the customers.
Warranty costs
Free replacements given due to failure of items supplied
Cost incurred to travel to customer’s site of repair
Cost of product returned
Cost of customer complaint admininstration
Cost of customer follow up and field service department

8. REDUCING COST
• REDUCTION OF PREVENTION COST:
Preventive activity should be pre-planned to avoid waste during the
process.
Establishment of quality system for preparation of a quality manual and
set of procedures.
Prevention costs means expenditure.
Employees should strictly adhere to the policies and procedures.

9. • PROGRESSIVE REDUCTION OF FAILURE COST:
Inspection is essential before assessing a new vendor, a new process or a
new product line.
Inspection generates lot of information and it should be utilized skilfully
by the organization to reduce future cost.

10. • REDUCTION OF FAILURE COST:
Efforts should be made to control the process, which would lead to
automatic control of the quality of the output.
Systemic action should be taken to reduce the rework and the scarp by
following TQM principles.