External failure cost
External failure costs arise when defects or non-conformance affect customers after delivery. Recorded examples include warranty repairs, returns, compensation and recall costs; lost customers and reputation can create further consequences that are hard to quantify. The framework supports prevention and system improvement, not only paying claims cheaply. Specify the delivery boundary and avoid double counting an event recorded in several accounts.
Worked example
A faulty product delivered to customers generates $10,000 recall transport and $25,000 replacement cost, plus an uncertain future reputation effect.
Common mistake
A low current warranty bill does not prove good quality if failures are delayed, customers abandon claims or long-term demand is damaged.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | APM | Direct | September 2026–June 2027 |