failure costs

failure costs

the cost to a firm of manufacturing defective products. Internal failure costs result from defects which arise during the production process, and include the cost of defective items which have to be scrapped (yield loss); the cost of reworking faulty items which have to be corrected (rework costs); and the loss of revenue from having to downgrade a product which has been identified as second quality and has to be sold as substandard at a lower than normal price.

External failure costs result from defects which arise after the product has reached the customer and include the cost of replacing or repairing defective products (GUARANTEE OR WARRANTY costs); and legal costs or damages to customers who have suffered physical or financial injury from defective products. An additional external failure cost is the loss of consumer goodwill and cancelled orders which, although difficult to quantify, can have a significant potential impact on sales and profits. See QUALITY COSTS, QUALITY CONTROL.

References in periodicals archive ?
Because this data is difficult to obtain it's easier to give equal attention to all equipment despite the very different overall failure costs.
They are considered as investments made to keep appraisal/detection and failure costs to a minimum, that is, to ultimately reduce the other two quality cost categories.
The benefits are evident: less balance failure and failure costs, and shorter durations (Verbaan, 2013).
The Veeam survey estimates that application failure costs enterprises more than $2m a year in lost revenue, productivity, opportunities and data irretrievably lost through backups failing to recover.
Application failure costs enterprises more than $2 million a year in lost revenue, productivity, opportunities and data irretrievably lost through backups failing to recover, added the fourth annual Data Center Availability Report 2014, released by Veeam Software, a provider of solutions for the modern data center.
The focus on Reducing system failure costs (page 16) is highlighted in an article by Taqi Mohiuddin, senior director of marketing for the Evans Analytical Group (EAG).
Percentage of total production costs for the case of internal failure costs.
Because the mean failure cost is calculated as the product of many factors (the stakes matrix, the dependability matrix, the impact matrix, the threat vector), we can control mean failure costs by controlling any one of these factors.
Other than agriculture, tourism is the area's major industry and while the impact on this is difficult to assess, there will be market failure costs as well as other impacts on the wider society.
Both prevention/appraisal costs and failure costs often work in inverse fashion.
Because heart failure costs Medicare, Medicaid and private insurance companies billions of dollars every year, the healthcare savings incurred by better compliance with treatment guidelines could be as important as the number of lives saved.

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