Our cost associated with quality consist not only of the cost to attain a level of quality, but also to sustain that level. As time goes by, we must also be mindful of the cost of poor quality. These can consist of cost associated with customer dissatisfaction and decreased customer loyalty. Any cost thought to be excessive is called a cost of quality. Internal and external failures are best known as cost of poor quality. Whereas, appraisal and prevention are seen as cost to achieve quality. Internal failure cost are defined by our failure to meet customer needs, scrap, rework, etc., and/or cost of insufficient processes. External failure cost are defined by our failure to meet customer requirements and needs. This are warranty charges, allowances and can also be quantified in terms of lost opportunity or sales revenue. Appraisal cost are incurred to determine the degree of conformance to quality requirements. Some examples of these are incoming inspection, final inspection and quality audits. Prevention cost are incurred to keep failure and appraisal cost to a minimum. Some examples include quality planning, design reviews, and training. Prevention cost are important, because they entail small investment costs relative to a higher cost of poor quality. When estimating cost to poor quality, consider this process. First, identify opportunities for cost reduction. These should be traceable to a specific actionable cause. A Pareto analysis can be useful. Next, quantify the size of the quality problem. Sometimes it can be much higher than thought. Put in terms of a measure important to the organization, such as sales. It also helps to reveal known and unknown problems. Look for opportunities to reduce customer dissatisfaction. Examples can be warranty charges, claims, downtime and other disruptions. Next, evaluate the progress of the quality improvement activities. Finally, roll these findings into a strategic quality plan. Regarding cost of poor quality, keep these important points in mind. First, the largest cost of poor quality occurs after the product has shipped. Focus first on quality issues earliest in the process for managing internal quality cost. External failure costs are much larger than internal failure costs. But internal failure costs are far more easy to identify, quantify, and correct. For quality improvement projects, start with internal failure costs attributable to specific activities and operations. Be careful when conducting a Cost Of Poor Quality analysis, there are many pitfalls to watch for. You must have relevant accounting experts to validate Cost Of Poor Quality before presenting to management. Realize that most accounting systems do not accurately reflect the effect of Cost Of Poor Quality on operating costs. For every real dollar reduction in Cost Of Poor Quality, profit is increased by the same amount. Finally, Cost Of Poor Quality is not directly proportional to production volume. Remember, long term, control charts of Cost Of Poor Quality must reflect production volume. Cost Of Poor Quality drastically increases as the product progressively moves toward the customer. Cost Of Poor Quality in one operation may be highly leveraged in another operation. In other words, a reduction in Cost Of Poor Quality in one operation could lead to an increase somewhere else. Cost reduction projects frequently result in customer dissatisfaction and defections. As pointed out before, these costs are just shifted elsewhere. Other consequences include decreased product reliability and product lifetime. Other times, cost or poor quality can lead to increased cost of use and re-work. A managed quality tracking system is necessary for assessment of the true cost savings. Use the Pareto Principle with the quality tracking system to identify the greatest contributors.