The rule explains how failure to take notice of one cost escalates the loss in terms of dollars. There are many costs of non-quality such as: (1) prevention, (2) appraisal, (3) internal failure, and (4) external failure. Of these types of costs, prevention cost should probably take priority because it is much less costly to prevent a defect than to correct one.
The principle is not unlike the traditional medical axiom: “An ounce of prevention s worth a pound of cure.” The relationship between these costs is reflected in 1-10-100 rule as depicted in the following illustration:
In the above illustration it is attempted to show that one dollar spent on prevention will save 10 dollars on correction and 100 dollar on failure costs. As one moves along the streams of events from design to delivery or “dock-to-stock,” the cost of errors escalates as failure costs becomes greater.
Source: Total Quality Management, Joel E.Ross
Total Quality Management 
[…] That sounds cooler than it actually is. I wish that I could tell you that I spent the months between when I decided to leave and now constructing and perfecting my next venture. Believe me, I tried. And to be fair, I have been jotting down idea after idea with near reckless abandon and some great results. The process went sort of like this: Something would cause a lightbulb to go off in my head… “oh man, I wish there was a way for me to do X better”, or “why do this thing have to work like that” etc etc. We all have our own ways of coming up with new ideas, for me – I like to solve problems and take advantage of lazy industries & business. I took a few of these “ideas” and starting writing plans around them – you know the process: What is the big idea? Can it be distilled into a simple message? How does it make money? Is anyone doing this already? and so on. Yes – it is called a business plan – but while writing a business plan has its merits, it is such an asexual process. Some ideas couldn’t make it past this phase, and that’s cool. Even the ones that did still required a lot of tuning before I was ready to put real time and money behind them. So I was sitting there strategizing about how I could quickly take these “great” ideas to the next phase and my inner monologue kicked in, “get out of the stands and get on the field”. It’s the sort of thing that I always tell entreprenuers that I meet, but here I was making the same tragic mistake. I was trying to perfect my ideas in the lab as opposed to building them out in the open. I know it is a bit scary at first, but here’s the honest truth: get over it. Get over your inhibitions. Just get out there and do something. I think many of us are afraid of failure. And so what’s worse than failure? Public Failure! But at the end of the day failure is failure any way you slice it. The reality is that your odds of failing decrease if you test the product or idea very early on. Take a look at the 1-10-100 rule to see what I mean What is 1-10-100 Rule? « Total Quality Management. […]
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