The cost of quality is everything a business spends on making things right, plus everything it loses when things go wrong. Joseph Juran wrote about the cost of poor quality in his 1951 Quality Control Handbook. Armand Feigenbaum set out the four categories most widely used today, known as the prevention, appraisal and failure (PAF) model.
The point of measuring it is that failure costs are usually much bigger than they appear, because they are spread across wages, materials, travel and credit notes instead of sitting in one line of the accounts.
| Category | What it covers | Small-business examples |
|---|---|---|
| Prevention | Stopping problems happening | Training, written procedures, design checks, supplier vetting |
| Appraisal | Checking for problems | Inspections, testing, checking invoices, site sign-off |
| Internal failure | Problems found before the customer sees them | Scrap, rework, re-printing, correcting an invoice before sending |
| External failure | Problems the customer finds | Callbacks, refunds, warranty work, complaints, lost customers |
Prevention and appraisal are the cost of good quality. Internal and external failure are the cost of poor quality.
External failures are usually the most expensive: they add travel, a second visit, admin and lost goodwill. Prevention is usually the cheapest. Spending a little more on prevention often cuts failure costs by much more than it costs. That is the central argument of the PAF model.
A joinery firm with £900,000 turnover adds up a year's quality costs:
That is £66,000, or 7.3% of turnover, and 80% of it is failure. Even a modest cut in failures would be worth more than doubling the prevention budget.
Use real figures where you can: callbacks from job records, credit notes from the accounts, rework hours from timesheets.
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