What are external failure costs?

External failure costs refer to the expenses incurred when defects in products are discovered after they have been delivered to customers. These costs can arise from a variety of situations, such as warranty claims, returns, repairs, and loss of reputation, which can severely impact an organization’s bottom line and customer satisfaction.

By identifying and understanding external failure costs, businesses can work towards minimizing these expenses by improving quality control measures and addressing issues before products reach the customer. This approach not only helps to enhance customer satisfaction but also supports long-term profitability by reducing the likelihood of returns and warranty claims.

In contrast, options that involve costs for inspecting products, investigating quality issues, or preventing defects focus on earlier stages of the quality management process and do not pertain to defects found post-delivery. These earlier costs are crucial for minimizing external failure costs, but they do not fall under the definition of external failure costs themselves.