Which of the following is an external failure cost?

The concept of Cost of Quality (COQ) helps organizations understand the financial impact of quality-related activities. COQ includes various cost categories, and one of them is external failure costs. Let’s break down the options:

Rework costs:

Rework costs are associated with correcting defects or errors in products or services before they reach the customer.

These costs fall under internal failure costs, not external failure costs.

Downgrading costs:

Downgrading costs refer to the expenses incurred when products or services are downgraded due to quality issues (e.g., selling a premium product as a lower-grade product).

These costs are also considered internal failure costs, not external failure costs.

Product liability costs:

Product liability costs arise from legal claims related to defective products causing harm or injury to customers.

These costs are external failure costs because they occur after the product has been delivered to the customer.

Costs of corrective actions:

Costs of corrective actions include expenses related to identifying and addressing quality problems.

These costs are typically part of prevention costs (activities aimed at preventing defects), not external failure costs.

Therefore, product liability costs directly relate to external failure, as they involve legal consequences and customer dissatisfaction after product delivery1.

References: 2. ASQ: Cost of Quality (COQ) 3. ASQ Certified Manager of Quality/Organizational Excellence 4. CMQ/OE Body of Knowledge