The Cost of Quality has been defined as the sum of 4 separate costs: the cost of prevention, the cost of appraisal, the cost of internal failure and the cost of external failure.

Cost of prevention is the cost of activities focused on preventing poor quality in the product or service. These costs can be things such as the design process, process capability studies, quality meetings and planning and a host of other activities having to do with preventing failures.

Costs of appraisal are those costs associated with measuring or evaluating conformance to your standards, specifications and quality measures. These include things such as inspections (incoming material and product testing); product, process and service audits; calibrations, as well as the cost of the equipment and materials to appraise the product or service.

Costs of internal failure are those costs associated with finding a failure in-house before it reaches the customer. Rework and scrap are prime examples of these costs as well any other activities associated with a failure found before delivery to the customer.

Costs of external failure are typically viewed as the most expensive and may include some intangible costs. Tangible costs could include processing customer complaints, warranty claims, recalls and returns. Intangibles could include things such as lost opportunities and diminished reputation.

SPC tools are effective in ascertaining the costs of internal and external failures. One such tool is the Pareto chart... For example, the following chart reflects number of defects in certain categories over the last 6 months.