When to use it
Use it to decide where quality investment can reduce total cost and harm.
When to be cautious
Recorded rework understates external failure when reputation, disruption or safety is omitted.
Apply it
Cost of quality = prevention + appraisal + internal failure + external failure
Use mutually exclusive categories on the same boundary. Costs of prevented failures are counterfactual estimates, not realised savings.
- Define the quality requirement and failure boundary.
- Separate prevention, checking and failure-related expenditure.
- Evaluate changes using total cost and unacceptable consequences.
An example in practice
Automated checks add development effort but reduce manual correction and failed releases. Assess both sides on a common horizon.
Source & credit
Standard estimating practice; the cited guide documents use rather than claiming invention.
GAO: Cost Estimating and Assessment Guide
This explanation and example are independently written. The source is a reading reference; linking it does not grant permission to reuse its text, figures or assessments.