Design Tolerances Based on Economics (Using the Taguchi Loss Function)

Defining tolerances for our quality characteristics is sometimes not an easy task. If we set tight tolerances, it could be costly to make with a lot of rejects and rework in the future. If we’re too sloppy with our tolerances, then it can affect the functionality of our product, leading to unhappy customers, and also possible rework and scrap. There’s economics involved in setting-up tolerances.

Genichi Taguchi related his measure of quality (variation from the target spec) with economics, called the Taguchi Loss Function. It’s used to calculate the cost (in money) of a certain deviation from a target value. It assumes that the farther our quality characteristic is from our target value, the more costly it is to us.

We talk about how we can use the Taguchi Loss Functions as a way for us to set tolerances for our designs. Scroll lower to get an interactive tool and the equations.

We should be communicating targets, or nominal dimensions, for our quality characteristics when possible. Keep design for manufacturability in mind, and realize that there’s increasing costs with product that drifts from the target, even if it’s within our tolerance window. We can keep the Taguchi Loss Function in mind as a tool to figure out what that design spec should be; linking our tolerances to economics is a viable and realistic thing to do.

Taguchi Loss Function Equations

See this interactive tool showing Taguchi Loss Function. Original source of this tool is

Abelardo, Randolph. “Taguchi Loss Function vs. Traditional Goal Post.” Geogebra, 27-Mar-2014,, accessed 6 Sep. 2021.

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