Quality Costs - Costs incurred to ensure that a product / service is defect free and conforming to customer specifications. Following are its components.
1. Prevention Cost - The costs incurred to avoid or minimize the number of defects at first place. E.g. - improvement of manufacturing processes, workers training, quality engineering, statistical process control etc.
2. Appraisal Cost - Costs that are incurred to identify defective products before they are shipped to customers. These are also called 'Inspection Costs'. E.g. - QA cost, QC cost.
3. Cost of Poor Quality - is defined as the cost of 'not doing it right the first time' or it is the cost incurred to correct the defects in a product/service. It can be of two types.
a. Internal Failure Cost - cost of rework / corrections before the product or service is delivered to client.
b. External Failure Cost - cost of rework / replacement / warranty cost after the product or service is delivered to client. This will also include costs related to loss of trust, reputation and clientele (though these are not always easy to quantify).
An application oriented question on the topic along with responses can be seen below. The best answer was provided by Raghavendra Rao on 15th November 2017.