Question

why might prevention costs be referred to as investment while failure costs might be referred to as true costs

Answer 1

The prevention costs incurred from such activities which are expected retain minimum failure, such as creating product specification, performing quality planning, employee upskill training, creation of quality management system , new product testing, statistical process control, etc. The prevention cost is referred as investments as these costs focused towards cost savings in the long term perspective to have minimum failure for the betterment of the organizational resources. Whereas, failure costs relates either with internal failures or external failures. Internal failure costs are the ones which are identified before the end product delivered to customer. For example, re-work effort on the product, increased waste due to weaker quality processes, improper maintenance of the resources, etc. Whereas, external failure costs relates with the cost incurred once the product is delivered to the customer. For example, repair and service cost, customer complaints, incorrect order delivered, etc. Thus, these costs cannot be retrieved and the considered on the actual cost basis in any business.