Describe the relationship among prevention costs, appraisal costs, and failure costs. Where should a company's efforts be focused? Why?

Question

What will be an ideal response?

Answer 1

The four types of quality costs are interrelated. In summary, total quality costs are considered to be the sum of prevention costs, appraisal costs, failure costs, and intangible costs. Investments made to prevent poor quality will reduce internal and external failure costs. Consistently high quality reduces the need for many appraisal activities. Suppliers with strong quality systems in place can reduce incoming inspection costs. High appraisal costs combined with high internal failure costs signal that poor-quality products or services are being provided. Efforts made to reduce external failure costs will involve changes to efforts being made to prevent poor quality. Internal failure costs are a portion of the total production costs, just as external failure costs reduce overall profitability. A trade-off to be aware of when dealing with quality costs is the need to ensure that appraisal costs are well spent. Companies with a strong appraisal system need to balance two points of view: Is the company spending too much on appraisal for its given level of quality performance or is the company risking excessive failure costs by under-funding an appraisal program? In all three areas—prevention, appraisal, and failure costs—the activities undertaken must be evaluated to ensure that the efforts are gaining further improvement in a cost-effective manner.