Can the costs of setting standards of service ever outweigh the benefits If so when and how?

They should not because the costs of setting standards is a one-off cost: there may be costs in maintaining those standards and in delivering services to those standards but that is not part of the cost of setting standards. On the other hand, the benefit of setting standard should be on-going - for ever - and so should outweigh the cost of setting them.

However, that may not be true if services were delivered to a very high standard and setting the standard made no real difference to the delivery (all cost and no benefit), or worse, if the standards set were lower than the existing level (costs and negative benefits).

Furthermore, suppose you sell goods and related after-sales services, but that these services are very rarely required. You may wish to spend a disproportionate amount on setting standards of services and treat the service element as a loss leader in order to be more competitive in selling your products.