External Failure Costs.

This are costs associated with deficiencies that are found after product is received by the customer.Also included are lost opportunities for sales revenue.

Failure to Meet Customer Requirements and Needs

1. Warranty charges
2.Complaint adjustment
3.Returned material
4.Allowances: The costs of concessions made to customers due to conforming product that does not meet customer needs.
5.Penalties due to poor quality
6.Rework on support operations : Correcting errors on billing and other external processes.
7.Revenue losses in support operations : An example is the failure to collect on receivables from some customers.

Lost Opportunities for Sales Revenue

1.Customer defections : contracts that are cancelled due to quality.
2.New customers lost because of quality : Profit on potential customers lost because of poor quality.
3.New customers lost because of lack of capability to meet customer needs.