Explaining the Cost of Quality, the 4 Cost Categories and Juran’s Quality Cost Curve

Main ideas / lessons conveyed

• The “cost of quality” is the total cost associated with achieving quality (both doing it right and failing to do it right).

• A framework (credited to Armand V. Feigenbaum, based on his 1956 Harvard Business Review work) divides costs into four categories:

  • Prevention and Appraisal → Cost of Good Quality
  • Internal Failures and External Failures → Cost of Poor Quality

• Most business activities can be classified into one of these four buckets using a key question:

  • If you built a 100% conforming product, would that cost still exist?
    • If yes, it’s typically cost of good quality (prevention/appraisal).
    • If no (it arises from nonconformance), it’s cost of poor quality (internal/external failures).

• The speaker emphasizes a bias toward prevention over inspection:

  • Prevention focuses on ensuring quality happens upstream, rather than relying on detection at the end.

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Methodology / instructions

How to categorize a cost/activity into the four buckets (Feigenbaum-style logic)

• Ask yourself:
  • If we built a 100% conforming product, would this cost still be there?
• Interpret the answer:
  • If the cost would still be required at 100% conformance
    • classify as Good Quality cost
    • specifically Prevention or Appraisal depending on the activity type
  • If the cost occurs because nonconforming product was produced
    • classify as Poor Quality cost
    • it will fall into:
      • Internal failures if detected before shipment
      • External failures if detected after shipment

Decision principle: prevention vs. appraisal

• When deciding between preventing issues vs. detecting them:
  • Prefer prevention—aim to prevent nonconformance rather than “inspect quality in.”

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The four cost categories (with examples of activities)

1) Prevention cost (cost of good quality)

Definition: Activities/costs designed to prevent poor quality / nonconformance from occurring.

Examples mentioned:

• Design / engineering
  • Market research and voice of the customer
  • Design inputs
  • Robust design / Design for Six Sigma
  • Risk management tools such as fault tree analysis and DFMEA
  • Design prototype testing
  • Design outputs
  • Design reviews
  • Design V&V (verification & validation)
  • Process validation
  • Equipment fixture / defect-proofing
• Vendor / supplier prevention
  • Supplier quality approaches
  • Supplier evaluation and capability assessment
  • Supplier qualification
  • Supplier scorecards, supplier ratings
  • Supplier quality agreements
• Production / operations prevention
  • New employee screening and training
  • Controlled storage of raw material
  • Quality planning activities
  • Quality system audits
  • Writing procedures
  • Predictive equipment maintenance
  • Continuing education
  • Quality system data activities
  • Quality improvement projects

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2) Appraisal cost (cost of good quality)

Definition: Activities/costs designed to measure, inspect, evaluate, or audit to ensure products meet requirements.

Examples mentioned:

• Supplier/appraisal
  • Receiving inspection
  • Source inspection
  • Supplier audits
  • Supplier surveys
• Operational/appraisal
  • In-process testing (measurements, functional testing)
  • Finished goods inspection
  • Equipment setup/testing to confirm process parameters are validated
  • Destructive testing
  • Costs of measurement/inspection equipment (explicitly included)
  • Laboratory testing
  • Testing and measurement/inspection used to control the process
• Quality management/appraisal
  • Product audits
  • Control charts and SPC
  • Review of inspection data
  • Periodic review of documentation
  • Maintenance and calibration of test equipment
  • Process control and monitoring activities

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3) Internal failure cost (cost of poor quality)

Definition: Costs from nonconformance detected before shipment to the customer.

Examples mentioned:

• Scrap and sorting
• Rework and reprocessing
• Reinspection
• Root cause investigation (including the idea that it consumes time/resources that could be used for improvement)
• Extra material handling (segregating nonconforming material into hold areas)
• Extra capacity needs (e.g., yield loss requiring additional capacity)
• Lost labor due to equipment downtime
• Excess inventory (described as a “hidden cost,” used to mitigate risk from downtime/yield loss)
• Scrap or rework due to design changes
• Employee turnover due to repeated unresolved issues

Underlying theme: Internal failures create waste and opportunity cost before products reach customers.

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4) External failure cost (cost of poor quality)

Definition: Costs from nonconformance detected after shipment to the customer.

Examples mentioned:

• Warranty costs
• Repair costs
• Customer complaints
• Product liability and legal fees
• Overhead costs of field service teams
• Recalls and market actions
• Lost sales and lost customers
• Lost reputation and goodwill

Underlying theme: External failures are the most devastating and expensive because they imply prevention/appraisal didn’t catch problems beforehand.

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Juran’s quality cost curve (conceptual model)

Axes and meaning

• Y-axis: Cost of quality activities
• X-axis: Quality level, from 0% conforming to 100% conforming

How the curve behaves

• Cost of good quality (Prevention + Appraisal):

  • Increases linearly as quality improves
  • At 100% conformance, prevention/appraisal are at their “most expensive” (per the model)

• Cost of poor quality (Internal + External failures):

  • Is near zero at 100% conformance
  • Increases exponentially as quality decreases
  • Rationale given: more nonconforming product reaches customers over time, driving penalties and dissatisfaction

Conclusion from the model

• The lowest total cost of quality occurs at 100% conformance
• The key message: fewer defects → minimized total cost, even if prevention/appraisal costs are higher

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Speakers / sources featured (identified in the subtitles)

1. Andy Robertson (host/presenter; “Andy Robertson here with CQE Academy”)
2. Armand V. Feigenbaum (credited with introducing the cost of quality idea; referenced via his 1956 Harvard Business Review paper)

3. Benjamin Franklin

   “An ounce of prevention is worth a pound of cure”

4. W. Edwards Deming

   “Quality comes not from inspection, but from improvement of the process”