There is probably no other design effort that can yield greater benefits fo
r less cost than the careful analysis and assignment of tolerances. However
, the proper assignment of tolerances is one of the least well understood a
ctivities in product engineering. The paper introduces a knowledge-based st
atistical approach to tolerance allocation, where a systematic analysis for
estimating process capability levels at the design stage is used in conjun
ction with statistical methods for the optimization of tolerances in assemb
ly stacks. The method takes into account failure severity through linkage w
ith failure mode and effects analysis (FMEA) for the setting of realistic c
apability targets. The application of the method is fully illustrated using
a case study from the automotive industry through the use of interactive s
oftware.