There are two separate components within Cost of Quality (COQ). We looked at the Cost of Conformance in our last tip and this time we’ll focus on the Cost of Nonconformance. The Cost of Conformance is focused on avoiding potential failures and the Cost of Nonconformance is the cost incurred as a result of any failures because the quality expectations were not met.
This "failure" is really easy to understand: You built a product, service or result through your product and it failed to meet quality expectations. Now you have to fix it, which is going to cost you.
There are both internal and external costs related to failure. Internal costs are those identified within the scope of the project. This includes things like the time and money it will take to rework part of the project. It also includes any cost involved if you have to throw away parts of your project work, which is officially called "scrap".
External failure costs are those identified after the product or service has been delivered to the customer. This includes things like warranty fulfillment, liability costs and the potential of a loss of business.