Preventive costs are any expenditures incurred that are intended to minimize the number of defects in products and services. For example, a company could invest in training programs for the operators of its production machinery, to ensure that they understand how to manufacture parts correctly. Or, a firm might engage in statistical process control analysis to detect when a process is beginning to produce goods that are out of specification. As another example, a business can establish standards for the quality of the raw materials that it buys from suppliers, and runs a certification program to ensure that these standards are met.
It is much less expensive to incur preventive costs than to sell defective goods or services, since the correction of these latter items can involve outright product replacement and the loss of customer goodwill. Preventive costs are considered part of the cost of quality.