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 BRITISH STANDARD BS 6143-2:
1990

Guide to the economics

of quality —
Part 2: Prevention, appraisal and
failure model
Licensed Copy: Armando Llanos, ISO/Exchange Cuba, 29 November 2002, Uncontrolled Copy, (c) BSI

UDC 65.011.4:658.56
 BS 6143-2:1990

Committees responsible for this

British Standard

The preparation of this British Standard was entrusted by the Quality,

Management and Statistics Standards Policy Committee (QMS/-) to Technical
Committee QMS/2, upon which the following bodies were represented:

Association for Consumer Research (ACRE) Electronic Engineering Association

BEAMA Ltd Energy Industries Council
British Quality Association GAMBICA (BEAMA) Ltd
British Railways Board Home Office
British Shipbuilders Institute of Clerks of Works of Great Britain
British Telecommunications plc Inc
British Valve and Actuator Manufacturers’ Institute of Quality Assurance
Association Institute of Trading Standards Administration
Ceramic Industry Certification Scheme Ltd Institution of Civil Engineers
Chemical Industries Association Institution of Electrical Engineers
Licensed Copy: Armando Llanos, ISO/Exchange Cuba, 29 November 2002, Uncontrolled Copy, (c) BSI

Computing Services Association Institution of Mechanical Engineers

Consumer Policy Committee of BSI Institution of Production Engineers
Contract Flooring Association Lloyd s Register of Shipping
Defence Manufacturers Association Medical Sterile Products Association
Department of Trade and Industry (National Ministry of Defence
Weights and Measures Laboratory) National House Building Council
Department of Trade and Industry (Standards Production Engineering Research Association
and Quality Policy Unit — Quality, Design of Great Britain
and Education Division) Society of British Aerospace Companies
Electricity Supply Industry in England and Telecommunication Engineering and
Wales Manufacturing Association

The following bodies were also represented in the drafting of the standard,
through subcommittees and panels:

Association of Consulting Engineers Guildford County College and Technology

Association of Consulting Scientists Institute of Maintenance and Building
British Cement Association Management
British Coal Corporation Institute of Purchasing and Supply
British Gas plc London Regional Transport
British Industrial Fasteners Federation National Association of Plumbing, Heating and
British Maritime Technology Mechanical Services Contractors
British Non-ferrous Metals Federation PIRA
British Nuclear Forum Post Office
British Nuclear Fuels Power Generation Contractors Association
British Steel Industry (BEAMA) Ltd
British Welded Steel Tube Association Rotating Electrical Machines Association
Business Equipment and Information (BEAMA) Ltd
This British Standard, having
Technology Association Society of Motor Manufacturers and Traders
been prepared under the
Cable and Wireless plc Ltd
direction of the Quality,
Management and Statistics Chartered Institute of Management Solvents Industry Association Ltd
Standards Policy Committee, Accountants Steel Casting Research and Trade Association
was published under the Department of Trade and Industry (National Transmission and Distribution Association
authority of the Board of BSI Physical Laboratory) (BEAMA) Ltd
and comes into effect on Engineering Equipment and Materials Users
31 May 1990 Association
© BSI 11-1998

First published as BS 6143,

Amendments issued since publication
July 1981
Second edition as BS 6143-2, Amd. No. Date of issue Comments
May 1990

The following BSI references

relate to the work on this
standard:
Committee reference QMS/2
Draft for comment 89/97322 DC

ISBN 0 580 18729 2

 BS 6143-2:1990

Contents

Page
Committees responsible Inside front cover
Foreword ii
0 Introduction 1
1 Scope 2
2 Definitions 2
3 Identification of cost data 2
4 Quality related cost reporting 2
5 Operating the quality costing system 2
6 Pilot study 3
7 Cost data 3
8 Quality cost trend analysis and reporting 4
9 Application of business management to quality related costs 5
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10 Setting up a programme 7
Appendix A Guidance notes on cost elements of prevention
appraisal and failure model 8
Appendix B Example of a quality cost report 10
Figure 1 — Increasing quality awareness and improvement activities 1
Figure 2 — Example of ranking 6
Table 1 — Example of quality cost comparison with product mix 5
Table 2 — A typical quality cost element comparison 6
Table 3 — Quality cost data by department as percentage of total
quality cost 6
Table 4 — Example of a quality cost report 10
Publications referred to Inside back cover

© BSI 11-1998 i
 BS 6143-2:1990

Foreword

This Part of BS 6143 has been prepared under the direction of the Quality,
Management and Statistics Standards Policy Committee. It is a revision of
BS 6143:1981 “Guide to the determination and use of quality related costs” which
is withdrawn.
This edition has been extensively revised and expanded in order to satisfy the
developing requirements of both manufacturing and service industries. It is for
this reason that the standard is now published in two Parts.
— Part 1: Process cost model (to be published);
— Part 2: Prevention, appraisal and failure model.
Part 1, the process cost model, sets out a method for applying quality costing to
any process or service. It recognizes the importance of process measurement and
process ownership. The categories of quality costs have been rationalized to the
cost of conformance and the cost of non-conformance. This serves to simplify
Licensed Copy: Armando Llanos, ISO/Exchange Cuba, 29 November 2002, Uncontrolled Copy, (c) BSI

classification. The method depends on the use of process modelling and the
standard gives guidelines on useful techniques. The application of the process
control model is compatible within the concept of total quality management.
Part 2, the prevention, appraisal and failure model, is a revised version of the
traditional method of product quality costing in manufacturing industries.
Improvements have been made in the light of experience and it is recognized that
successful practitioners may wish to continue with this approach. Continuation
of this approach does not preclude the simultaneous development of the process
cost model.
A British Standard does not purport to include all the necessary provisions of a
contract. Users of British Standards are responsible for their correct application.
Compliance with a British Standard does not of itself confer immunity
from legal obligations.

Summary of pages
This document comprises a front cover, an inside front cover, pages i and ii,
pages 1 to 12, an inside back cover and a back cover.
This standard has been updated (see copyright date) and may had
amendments incorporated. This will be indicated in the amendment table on
the inside front cover.

ii © BSI 11-1998
 BS 6143-2:1990

0 Introduction The pattern of quality cost varies from company to

company and the relationships shown in Figure 1
Traditionally quality performance has been
are schematic representations of the trends to be
reported to management in terms of rejection and
expected in quality costs as awareness of quality
defective material reports. This vital information is
and improvement activities increase.
often difficult to analyse and interpret in terms of
costs. As a result, cost saving opportunities may be Figure 1 illustrates how an increased awareness of
overlooked. Successful business requires financial the cost to the organization of quality failure leads
planning and control. It is advisable that quality first to an increase in appraisal of product quality.
failures be presented in financial terms. Then, as appraisal together with investigation
points to features/elements where improvement can
Initially, the following two important facts should
be made to product design/process/systems, more is
be appreciated: spent on prevention. Finally as preventive action
a) failures, however caused, reduce profits; takes effect the prevention appraisal and failure
b) preventive quality control activities and the proportions of the costs realign and all costs reduce.
Licensed Copy: Armando Llanos, ISO/Exchange Cuba, 29 November 2002, Uncontrolled Copy, (c) BSI

appraisal of quality standards cost money to Additional resources are usually allocated for
operate. quality related activities if it can be clearly
These costs can be regarded as quality related costs demonstrated that by so doing profitability will be
and in simple terms can be classified as follows: increased. Effective quality management can
1) prevention costs; provide a significant contribution to profit, and
evidence shows that resources deployed to identify,
2) appraisal costs; reduce and control failure costs gives a benefit in
3) internal failure costs; terms of improved quality, increased profitability
4) external failure costs. and enhanced competitiveness.
Investment in prevention can substantially reduce However it cannot be expected that unlimited
internal and external failure costs. Furthermore, resources will be available and there should be
reductions in external complaints are important not supporting financial information to demonstrate
only to reduce costs but to maintain purchaser that action to improve quality is justified and to
goodwill and company morale. This is illustrated direct attention to the most urgent (i.e. cost
in Figure 1. effective) improvements.

Figure 1 — Increasing quality awareness and improvement activities

© BSI 11-1998 1
 BS 6143-2:1990

Quality cost elements (see appendix A) differ from It is essential that the classification of cost data is
company to company and industry to industry. relevant and consistent with other accounting
Management should decide which costs are to be practices within the company so that comparisons
attributed to day-by-day manufacturing control and may be made between costing periods or related
set against production costs, and which are to be activities.
identified as quality related costs. Quality related costs are an identifiable subset of
business costs and accountants may find it useful to
1 Scope mantain a subsidiary ledger or memorandum
This Part of BS 6143 provides guidance on the account for this purpose.
determination of costs associated with defect For control purposes, it is necessary to allocate
prevention and appraisal activities, internal and quality cost to an activity and the use of account
external failures, and on the operation of quality codes within cost centres is one convenient method.
related costs systems for effective business The allocation of cost is important to the analysis
management. and prevention of failures. This allocation should
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NOTE The titles of the publications referred to in this standard not be made solely by the accountant; advice by a
are listed on the inside back cover. technical person may be needed.
2 Definitions 4 Quality related cost reporting
For the purposes of this Part of BS 6143, the In order to have sufficient impact, the report
definitions given in BS 4778 apply, together with detailing quality costs should be presented in a
the following. similar style to other management accounts, and
2.1 should be supported by financial ratios and trend
payroll cost analysis related to the business of the organization.
the total cost to an organization, of employing a The achievement of the required levels of quality
person, including, for example, gross pay, social involves much more than the inspection and test
security cost and company pension cost functions in the manufacturing stages of
production. Every department of a company bears
2.2
some responsibility for ensuring that the quality
memorandum account
requirements are met (see BS 4891 for further
a financial statement, subsidiary to and not part of guidance in this respect).
the actual accounts of an organization, relating to a The collection and analysis can be used to establish
particular activity or for a purpose not available in the total cost to the organization and/or to the
the actual accounts separate divisions or departments responsible for
2.3 the quality related cost.
quality related cost
cost in ensuring and assuring quality as well as loss 5 Operating the quality costing system
incurred when quality is not achieved Quality related cost should be collated and reported
NOTE Some frequently used subdivisions are as follows. based on data collected by the accounts department.
Prevention cost. The cost of any action taken to investigate, The separate roles most likely to be established for
prevent or reduce the risk of nonconformity or defect. operation of the system are as follows.
Appraisal cost. The cost of evaluating the achievement of quality
requirements including e.g. cost of verification and control a) Accounting department:
performed at any stage of the quality loop1).
1) collection of quality cost data;
Internal failure cost. The costs arising within an organization due
to nonconformities or defects at any stage of the quality loop such 2) allocation of quality cost to agreed activities;
as costs of scrap, rework, retest, reinspection and redesign.
External failure cost. The cost arising after delivery to a
3) provision of comparative bases for quality
customer/user due to nonconformities or defects which may cost assessment;
include the cost of claims against warranty, replacement and 4) production of an operating report for the
consequential losses and evaluation of penalties incurred.
accountancy period.
3 Identification of cost data b) Quality management:
Quality related cost appropriate to the organization 1) analysis of quality related cost, taking
should be identified and monitored. appropriate controlling action by investigating
causes and making recommendations for
improvement;

1)
See BS 5750-0.1.

2 © BSI 11-1998
 BS 6143-2:1990

2) coordination of inter-departmental activity The analysis may require all of the following five
to achieve quality related cost objectives; steps to identify the quality related costs.
3) pursuance of a continuing policy for cost Step 1 calculates those costs that are directly
reduction and control; attributable to the “quality” function. These will
4) arbitration on the responsibility for quality normally include:
failure costs. a) payroll cost of people specifically controlled by
the quality function or department;
6 Pilot study b) a proportion of building occupation costs
6.1 Procedure related to the quality function, e.g. rents, rates,
insurance, heating, lighting and security;
It may be helpful to establish preliminary figures
from a small department or a single product line to c) a proportion of canteen costs, office services
gain management approval and commitment to a and other administration costs;
total quality costing system. The pilot study should d) the cost of depreciation of specialized quality
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define the quality related cost categories and the control and assessment equipment;
cost elements to be used. e) the cost of quality training;
6.2 Quality costs elements f) the cost of smaller items that the organization
A list of categories and elements for operating does not capitalize.
quality related costs are shown in tabular form in Step 2 identifies costs that are not directly the
appendix B and it is included as a basis for responsibility of the “quality” function but which
development to meet the specific requirements of should be counted as part of the total quality related
the user’s own organization. cost of the organization. These costs are usually
During the pilot study, it is important that all incurred by other departments. It is not necessary to
possible cost sources be covered by an explicit and make a formal accounting transfer to the “quality”
definitive element. When experience is gained with function costs centre, but they should be included in
a new costs system, it will become apparent where a memorandum account. A number of departments
elements can be combined or eliminated, but this may incur these costs, e.g. purchasing, stores,
should not be done too early in the development. planning. Costs in this category should be
apportioned to quality on an equitable basis.
6.3 Time period
Step 3 identifies and enters the memorandum
The time period covered by the pilot study should be account the internal costs of “budgeted failures”. For
the same as that to be used for routine reports. This example it may be normal practice to make a
procedure permits establishment of an efficient product in batches of 100. To be certain of
collection system and detects potential trouble spots completing 100 it may be a matter of routine to
before a company commits itself to a full-scale plan 110 starts. Only experience will eventually tell
quality costs programme. whether it is worth calculating the cost of the
additional 10, but the costs should be calculated, at
7 Cost data least for a trial period.
7.1 Collection of cost data Step 4 identifies the internal costs of failures not
When the list of cost elements has been identified allowed for in step 3. Related costs may include
(see appendix A), the collection of cost data can materials that have been scrapped or the cost of
begin. More analysis may be needed in an reworking to put the non-conforming item right, or
organization that does not already have a even of completely remaking. The costs usually lie
departmental costing system than in one that has. either in the accounts of the department causing the
The guidance that follows, however, gives all failure or in the department carrying out the
organizations enough information to see what depth rectification. Wherever they lie, the costs should be
of analysis will be needed. noted in the memorandum account.
The following steps refer to a “quality” function as
being an existing budget centre. It is for this reason
that the term is placed within inverted commas.
The costs identified in steps one to two should be
mainly concerned with prevention and appraisal,
and those in steps three to five with failure costs.

© BSI 11-1998 3
 BS 6143-2:1990

Step 5 identifies the cost of failures after change of 8 Quality cost trend analysis and
ownership. Costs include the time spent by the reporting
quality department in investigations (these need to
be offset against the costs in Step 1, to avoid a The report format and frequency depends upon the
double count) and those costs of other departments nature of the business and the level of management
such as marketing, customer servicing, and to which the information is presented. For example,
accounts. These costs are rarely identified in tabulations, graphs, histograms and written text
existing systems. An initial estimate should be may be included. The reports should be relevant to
made and the results entered in the memorandum the business objectives and should therefore have a
account. Where the customer is eventually charged consistent basis against which true comparisons can
for the investigation and any costs of rectification, be made. It is recommended that at least three
the income should be noted in the memorandum measurement bases be related initially to quality
account. costs. They should represent the business from
different viewpoints and be sensitive to business
7.2 Cost data sources changes. The following are examples.
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It is advisable to confer with the management a) Labour base, e.g. internal failure costs related
accountants to review the list of elements and data to total labour or direct labour
sources. A good percentage of the desired
information is usually available in one form or internal failure cost
-------------------------------------------------------------
another, though this might not appear to be the case direct labour
at first. b) A cost base, e.g. total failure costs related to
Although there are no established rules for shop cost, manufacturing cost or total material
searching out data, the following are recommended labour
as valuable source documents: total failure cost
-----------------------------------------------------------
a) payroll analysis; manufacturing cost
b) manufacturing expense reports; c) Sales base, e.g. total quality cost related to nett
c) scrap reports; sales billed or value of finished goods transferred
d) rework or rectification authorizations/reports; to inventory
e) travel expense claims; total quality cost
−−−−−−−−−−−−−−−−−−−−−−−−−−−
f) product cost information; nett sales
g) field repair, replacement and warranty costs d) A unit base, e.g. test and inspection costs
reports; related to the number of units produced. Quality
cost per unit produced has many advantages, but
h) inspection and test records; it is necessary to take into account the effect of
i) nonconformance reports. product mix, volume and value
Data extracted from source documents should be test and inspection cost
transposed by appropriate collection work sheets ------------------------------------------------------------------------
units of production
and coded for easy tabulation. The aim is to have all
cost data reported by code. The use of coding permits e) A value added base, e.g. total quality related
consistency of collection regardless of the source or cost related to a measure of manufacturing
size of the costs. activity unaffected by fluctuation in sales and the
cost of purchased goods and services
Each department should report its costs. Data from
all sources should then be accumulated by code. total quality related cost
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Where actual costs cannot be directly associated value added
with specific elements it may be necessary to make As a matter of caution, measurement bases are only
an expense allocation by arbitration. If these costs as good as the methods for keeping them consistent.
are significant it is recommended that the necessary Consideration should be given, and adjustments
records be established in order to record the data made when bases are affected by the following:
factually.
1) direct labour replaced by automation;
7.3 Data tabulation
2) manufacturing cost changes due to the use of
After all costs have been collected they should be alternative materials, methods or processes;
tabulated to give a breakdown by element code. An 3) changes in gross margins, selling prices,
example of a proforma for periodic quality costs distribution costs and market demand;
reporting is shown in appendix B.
4) changes in product mix;

4 © BSI 11-1998
 BS 6143-2:1990

5) time scale of numerator that differs from time product D has the largest percentage failure cost
scale of denominator. but the amount of money involved is relatively
These factors should be considered and understood small;
when comparing trends. product B has both high failure cost and high
The charting of quality costs aids analytical work. percentage failure cost and may be the most
However, it may be necessary to take account of the rewarding area for cost reduction.
cyclic effects and short term fluctuations by moving 9.3 Cost comparison
average, or cusum techniques (see BS 5703).
It should be possible to derive relationships between
the total quality costs (TQC) and the costs of
9 Application of business management prevention, appraisal and failure, and to include
to quality related costs elements of these segments.
9.1 Introduction Over set time periods, changes in established
Quality costs alone do not provide sufficient relationships may indicate an increase in quality
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information for management to put them into costs in a certain department warranting further
perspective with other operating costs, or to identify investigation, e.g.
critical areas in need of attention. a segment to TQC comparison,
An effective method for establishing the significance
of quality costs is to provide a comparison with other −−prevention
−−−−−−−−−−−−−−−−−−−cost
−−−−−−
total quality cost
costs that are normally reported regularly within
the organization. an element to segment comparison,
9.2 Identification of critical areas cost of supplier assessment
-----------------------------------------------------------------------------------
prevention cost
Where more than one product is being investigated,
care should be taken to ensure that the an element to element comparison,
manufacturing costs of the product and the quantity cost of incoming test and inspection
-------------------------------------------------------------------------------------------------------------
produced are both taken into consideration when value of purchased parts
priorities are being allocated to the use of resources.
A comparison between quality costs elements can
It is important that products be separately recorded
reveal an imbalance between the costs of controls
and ranked in order of their total internal failure
and their effectiveness in controlling quality.
cost. (See example 1.) Appraisal does not in itself improve quality.
Example 1 Prevention activities serve to improve the quality of
From Table 1 it can be seen that: the product and reduce the incidence of defects. It
follows that as prevention is increased the need for
product A may yield the highest amount of
appraisal decreases.
saving but may be the most difficult to achieve;
A typical quality cost comparison is shown in
Table 2. The figures given in the table are not
unusual in those manufacturing industries where
reliance is placed upon inspection for the purpose of
quality assurance.
Table 1 — Example of quality costs comparison with product mix
Product Failure costs Manufacturing costs Failure costs
----------------------------------------------------------------- × 100 %
Manuf acturing costs
£ £

A 44 500 1115 000 4

B 30 000 400 000 7.5
C 5 000 100 000 5
D 5 000 50 000 10
E 3 000 300 000 1

© BSI 11-1998 5
 BS 6143-2:1990

9.4 Ranking Table 3 shows the presentation of data where

2)
Application of the Pareto method for separation of departments judged responsible for quality costs
the “vital few” from the “trivial many” will single out origination are ranked.
the highest contributor to any collection of figures.
The results may be ranked and charted to gain
better understanding of what is happening in the
business. (See examples 2 and 3.)
Example 2
Figure 2 illustrates the relative costs of defects
found in domestic appliances of a particular type.
The Pareto distribution reveals the pressure switch
malfunction as the most serious problem. It is
apparent that to achieve significant cost savings, a
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reduction in the incidence of malfunctioning of

pressure switches has to be made.
Table 2 — A typical quality cost element
comparison
Segment Element Percentage of
total quality
cost
Failure Scrap 35
Rework 11
Reinspection 9
Additional operations 8
Warranty 5
Downgrading 2
Others 2
Total failure cost 72
Appraisal Inspection and test 26
Prevention Control of preventive
Figure 2 — Example of ranking
activities 2
Grand total 100 Table 3 — Quality cost data by department
as percentage of total quality cost
The first step is to locate the cause of the pressure
switch defect. A group is assigned to identify the Department Percentage total quality cost
causes and to place them into one of the following Processing 30
five chosen categories: Subassembly 18.5
a) design/specification; Product planning 12.5
b) material; Design 10
c) operator; Final assembly 8
d) machine; Inspection 7
e) method;
Production control 4
A completed list of possible causes is suggested and
Maintenance 4
appended to each category heading.
Purchasing 2.5
Dependent upon the results of further study, action
may be taken to improve method of manufacture, Marketing 2
make changes based on experimentation or simply Service 0.5
to make the process foolproof if the remedies applied
Others 1
are economically unattractive.
Total 100 %
Example 3

2)
See Quality Control Handbook, J.M. Juray, F.M. Gryna & R.S. Bingham.4th Edition. McGraw — Hill.

6 © BSI 11-1998
 BS 6143-2:1990

10 Setting up a programme d) Training. The inclusion of quality and quality

costing as an integral part of all induction and
Quality improvements and quality cost reduction
training schemes. Everyone should understand
should be earned through problem solving.
from the outset the financial implications of
Quality problems should be identified and a quality and recognize that achieving and
problem in this context is defined as an area of maintaining a reputation for quality is vital to
significantly high quality cost. Every problem so the success and growth of an organization and to
identified provides an opportunity for greater everyone within it.
customer satisfaction and profit improvement.
e) Quality related cost awareness promotion. The
The procedures adopted by each organization will presentation of significant quality cost in readily
depend on many factors. These include the following understandable terms to all personnel. This
key elements. might include displays of defective products
a) Management commitment. The commitment of carrying price tags, or charts of rework or
management to attaining acceptable quality defective costs per section per day indicating a
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levels in the most economical way. possible course of remedial action.

b) Quality related costs procedures. The devising f) Quality related cost participation. It should be
and implementation of procedures for the accepted that ideas for the reduction of quality
identification reporting and analysis of quality related cost can emanate from any part of the
costs. organization. The introduction of a suitable
c) Quality related costs action team. The scheme for achieving maximum participation of
formation of a quality cost action team employees in this activity is advocated including
responsible for overall direction, coordination, means of promoting, initiating, receiving,
and for ensuring that quality cost savings targets discussing, appreciating and actioning new ideas.
are set and met. Quality related cost action groups or “quality
circles” organized throughout the company may
well meet this purpose.

© BSI 11-1998 7
 BS 6143-2:1990

Appendix A Guidance notes on cost f) Supplier assurance. The initial assessment,

elements of prevention appraisal and subsequent audit and surveillance of suppliers to
ensure they are able to meet and maintain the
failure model requisite product quality. This also includes the
quality organization’s review and control of
A.1 Prevention costs
technical data in relation to purchase orders.
These costs are incurred to reduce failure and g) Quality training. Includes attending,
appraisal costs to a minimum. The usual categories developing, implementing, operating and
include the following. maintaining formal quality training
a) Quality planning. The activity of planning programmes.
quality systems and translating product design h) Quality auditing. The activity involving the
and customer quality requirements into appraisal of the entire system of quality control or
measures that will ensure the attainment of the specific elements of the system used by an
requisite product quality. It includes that broad organization.
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array of activities that collectively create the

i) Acquisition analysis and reporting of quality
overall quality plan, the inspection plan, the
reliability plan and other specialized plans as data. The analysis and processing of data for the
appropriate. It also includes the preparation and purpose of preventing future failure is a
prevention cost.
vetting of manuals and procedures needed to
communicate these plans to all concerned. Such j) Quality improvement programmes. Includes the
quality planning may involve departments other activity of structuring and carrying out
than the quality organization. programmes aimed at new levels of performance,
b) Design and development of quality e.g. defect prevention programmes, quality
measurement and test equipment. Included are motivation programmes.
the costs of designing, developing and
A.2 Appraisal costs
documenting any necessary inspection, testing or
proving equipment (but not the capital cost of the These costs are incurred in initially ascertaining the
equipment in question). conformance of the product to quality requirements;
c) Quality review and verification of design. they do not include costs from rework or
Quality organization monitoring activity during reinspection following failure. Appraisal costs
the product’s design and development phase to normally include the following.
assure the required inherent design quality. a) Pre-production verification. Cost associated
Quality organization involvement with design with testing and measurement of pre-production
review activities and in verification activity for the purpose of verifying the conformance of
during the various phases of the product the design to the quality requirements.
development test programme including design b) Receiving inspection. The inspection and
approval tests and other tests to demonstrate testing of incoming parts, components and
reliability and maintainability. materials. Also included is inspection at the
This includes quality organization effort supplier’s premises by the purchaser’s staff.
associated with that part of process control c) Laboratory acceptance testing. Costs related to
which is conducted to achieve defined quality tests to evaluate the quality of purchased
goals. materials (raw, semi-finished or finished) which
d) Calibration and maintenance of quality become part of the final product or that are
measurement and test equipment. The cost of consumed during production operations.
calibration and maintenance of templates, jigs, d) Inspection and testing. The activity of
fixtures and similar items should be included. inspecting and testing first during the process of
e) Calibration and maintenance of production manufacture, and then as a final check to
equipment used to evaluate quality. The costs of establish the quality of the finished product and
calibration and maintenance of templates, jigs, its packaging. Included are product quality
fixtures and similar measurement and audits, checking by production operators and
evaluating devices should be included but not the supervision and clerical support for the function.
cost of equipment used to manufacture the It does not include inspection and testing made
product. necessary by initial rejection because of
inadequate quality.

8 © BSI 11-1998
 BS 6143-2:1990

e) Inspection and test equipment. The e) Fault of subcontractor. The losses incurred due
depreciation costs of equipment and associated to failure of purchased material to meet quality
facilities; the cost of setting up and providing for requirements and payroll costs incurred. Credits
maintenance and calibration. received from the subcontractor should be
f) Materials consumed during inspection and deducted, but costs of idle facilities and labour
testing. Materials consumed or destroyed during resulting from product defects should not be
the course of destructive tests. overlooked.
g) Analysis and reporting of tests and inspection f) Modification permits and concessions. The costs
results. The activity conducted prior to release of of the time spent in reviewing products, designs
the product for transfer of ownership in order to and specifications.
establish whether quality requirements have g) Downgrading. Losses resulting from a price
been met. differential between normal selling price and
h) Field performance testing. Testing is reduced price due to non-conformance for quality
performed in the expected user environment, reasons.
Licensed Copy: Armando Llanos, ISO/Exchange Cuba, 29 November 2002, Uncontrolled Copy, (c) BSI

which may be the purchaser’s site, prior to h) Downtime. The cost of personnel and idle
releasing the product for customer acceptance. facilities resulting from product defects and
i) Approvals and endorsements. Mandatory disrupted production schedules.
approvals or endorsements by other authorities. The external failure costs include the following.
j) Stock evaluation. Inspecting and testing stocks 1) Complaints. The investigation of complaints
of products and spares which may have limited and provision of compensation where the latter is
shelf life. attributable to defective products or installation.
k) Record storage. The storage of quality control 2) Warranty claims. Work to repair or replace
results, approval and reference standards. items found to be defective by the purchaser and
accepted as the supplier’s liability under the
A.3 Failure costs terms of the warranty.
These are subdivided into internal and external 3) Products rejected and returned. The cost of
failure costs: internal costs arising from inadequate dealing with returned defective components. This
quality discovered before the transfer of ownership may involve action to either repair, replace or
from supplier to purchaser and external costs otherwise account for the items in question.
arising from inadequate quality discovered after Handling charges should be included.
transfer of ownership from the supplier to the NOTE While loss of purchaser goodwill and confidence is
purchaser. normally associated with external failure costs, it is difficult
to quantify.
The internal failure costs include the following.
4) Concessions. Cost of concessions, e.g. discounts
a) Scrap. Materials, parts, components, made to purchasers due to non-conforming
assemblies and product end items which fail to products being accepted by the purchaser.
conform to quality requirements and which
5) Loss of sales. Loss of profit due to cessation of
cannot be economically reworked. Included is the
labour and labour overhead content of the existing markets as a consequence of poor
scrapped items. quality.
6) Recall costs. Cost associated with recall of
b) Replacement, rework and repair. The activity of
defective or suspect product from the field
replacing or correcting defectives to make them
including the cost of preparing plans for product
fit for use including requisite planning and the
recall.
cost of the associated activities by material
procurement personnel. 7) Product liability. Cost incurred as a result of a
c) Troubleshooting or defect/failure analysis. The liability claim and the cost of premiums paid for
insurance to minimize liability litigation
costs incurred in analysing non-conforming
damages.
materials, components or products to determine
causes and remedial action, whether
non-conforming products are usable and to decide
on their final disposition.
d) Reinspection and retesting. Applied to
previously failing material that has subsequently
been reworked.

© BSI 11-1998 9
 BS 6143-2:1990

Appendix B Example of a quality cost report

An example of a quality cost report is given in Table 4.
Table 4 — Example of a quality cost report
Group: Division:
Unit: Period: Year:
Current period Year to date
Budget Actual Difference Budget Actual Difference
costs costs
£ £ £ £ £ £
Prevention costs
Quality planning
Design and development of quality
Licensed Copy: Armando Llanos, ISO/Exchange Cuba, 29 November 2002, Uncontrolled Copy, (c) BSI

measurement, test and control

equipment
Quality review and verification of
design
Calibration and maintenance of
quality measurement, test and
control equipment
Calibration and maintenance of
production equipment used to
evaluate quality
Supplier assurance
Quality training
Quality auditing
Acquisition, analysis and reporting
of quality data
Quality improvement programme
Total prevention cost
% of total quality cost
Appraisal costs
Pre-production verification
Receiving inspection
Laboratory acceptance testing
Inspection and testing
Inspection and test equipment
Materials consumed during
inspection and testing
Analysis and reporting of test and
inspection results
Field performance testing
Approvals and endorsements
Stock evaluation
Record storage
Total appraisal cost
% of total quality cost

10 © BSI 11-1998
 BS 6143-2:1990

Table 4 — Example of a quality cost report

Group: Division:
Unit: Period: Year:
Current period Year to date
Budget Actual Difference Budget Actual Difference
costs costs
£ £ £ £ £ £
Internal failure costs
Scrap
Replacement, rework and repair
Troubleshooting or defect/failure
analysis
Licensed Copy: Armando Llanos, ISO/Exchange Cuba, 29 November 2002, Uncontrolled Copy, (c) BSI

Reinspection and retesting

Fault of subcontractor
Modification permits and
concessions
Downgrading
Downtime
Total internal failure cost
% of total quality cost
External failure costs
Complaints
Warranty claims
Products repeated and returned
Concessions (deviations)
Loss of sales
Recall costs
Product liability
Total external failure cost
% of total quality cost
Total quality cost (TQC)

Typical ratios
TQC as a percentage of:
TQC × 100
−−−−−−−−−−−−−−−−−−−−−−−−−
TQC × 100
−−−−−−−−−−−−−−−−−−−−−−−−−
% Sales revenue %
Sales revenue Sales revenue
TQC × 100
−−−−−−−−−−−−−−−−−−−−−−
TQC × 100
−−−−−−−−−−−−−−−−−−−−−−
% Value added %
Value added Value added
TQC × 100
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
TQC × 100
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
% Direct labour costs %
Direct labour costs Direct labour costs
Distribution:

Issued by: Date:

© BSI 11-1998 11
Licensed Copy: Armando Llanos, ISO/Exchange Cuba, 29 November 2002, Uncontrolled Copy, (c) BSI

12
blank
 BS 6143-2:1990

Publications referred to

BS 4778, Quality vocabulary.

BS 4778-1, International terms.
BS 4778-2, Quality concepts and related definitions.
BS 4891, A guide to quality assurance.
BS 5703, Guide to data analysis and quality control using cusum techniques.
BS 5750, Quality systems.
BS 5750-0, Principal concepts and applications.
BS 5750-0.1, Guide to selection and use.
Licensed Copy: Armando Llanos, ISO/Exchange Cuba, 29 November 2002, Uncontrolled Copy, (c) BSI

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