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Taguchi's quadratic loss function says quality loss rises with the square of deviation from target: L = k(y - m)^2, with k calibrated so that loss at the tolerance limit equals a known cost. It replaces goalpost thinking — anything inside tolerance is fine — with continuous pressure towards the target.
Taguchi loss
k = A / tolerance^2; L(y) = k x (y - target)^2
Because a part at the edge of tolerance performs worse in the customer's assembly than one on target, even though both pass inspection. Stack-up of near-limit parts is where field failures originate.
From the cost of the consequence — scrap, rework, warranty or customer dissatisfaction — at the point where the characteristic is just unacceptable.