The economic conformance level model proposes a cost-minimising quality level, achieved by balancing prevention and appraisal costs against internal and external failure costs. The point at which marginal prevention and appraisal costs equal marginal failure costs is the optimal economic conformance level. This model posits a trade-off between the costs of failure and the cost of conformance.
Ponemon et al. (1994) and Ittner (1996) are some of the few studies that provide empirical evidence about relationships among the four traditional categories of quality, the magnitude of the trade-offs between conformance and non-conformance costs, or the lag between increased conformance activity and reductions in quality failure. Ponemon et al. (1994) find a cost-to-quality relationship, and a trade-off between conformance costs and external failure costs. They also provide evidence of unknown associations for both prevention and appraisal expenditures and internal failure costs. Likewise, Ittner (1996) finds evidence that additional investments in prevention and appraisal activities were associated with significant reductions in non-conformance costs in the current or following year.