The quality cost conformance model provides an example of a constrained optimization approach. In this model the economic conformance level (ECL) is obtained where prevention and appraisal costs are equal to external and internal failure costs. Prevention and appraisal costs increase as the level of conformance quality increases. Conformance quality refers to conformance to specifications as opposed to design quality, i.e., service functions or features. Failure costs are expected to decrease as the level of conformance quality increases. Therefore, the total costs associated with conformance quality will be U-shaped as indicated in the exhibit below. Prevention costs include quality engineering, training and related supervision costs. Appraisal costs include inspection, testing and supervision related to these activities. Internal failure costs include spoilage, scrap, rework and the associated downtime costs, while external failure costs include warranty costs and the costs of lost customers.

The ECL model is associated with Juran. Deming and others, such as Crosby (author of Quality is Free) view the calculation of the ECL as a waste of time. From this perspective, the main problem with the ECL methodology is that the model is likely to be mis-specified by underestimating or ignoring the costs associated with lost customers. A revised model with the "quality is free" perspective is provided in the exhibit below. This model provides a long run view where the lost sales dollars resulting from past failures are included in external failure costs. Of course, lost sales dollars are unknown amounts, but there is adequate reason in most industries to believe that they represent substantial amounts, perhaps so large that the two curves never intersect.

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