The costs of not using quality: Are you willing to pay for quality in your business?

January 29, 2013


Studies show that across industries Cost of Quality (Failure, Appraisal & Prevention) is: 2.6-4% of sales revenue.

In the construction industry the Cost of Quality profile is:

70% spent on Failure Costs

25% on Appraisal Costs and only

5% spent on Prevention Costs.

The cost of correcting deviations from construction specification is 12% of project cost whereas

the cost of providing quality management is only 1-5% of project cost.

A research study found rework costs on a study of 260 construction projects:

Mean rework cost as a % of contract value

Indirect            5.43

Direct              5.56

Total             11.07

For homebuilding consider this

Take 3.5% of revenue is cost of quality

75% of cost of quality is failure costs

= 2.62 % of revenue is failure cost

Therefore on a $150k home $3930 is failure cost

On a $150k home the profit at 1.22% (taken from industry data via Professional Builder Magazine) is $1830

If 50 homes per year are built that equals $589,500 of failure cost per year, the equivalent of 4 homes per year (at $150k) built for the sheer fun of it.

Run your own numbers, what is it costing you NOT to use quality?


(References:  Rodchuca, 2009,  Zimak, 2000,  Xiao & Proverbs, 2002, Love et al 2009, Professional Builder 2009)

Denis Leonard has a degree in construction engineering an M.B.A. and a Ph.D. in quality management. Denis is a Fellow of the American Society for Quality, a Certified Quality Manager, Auditor, and Six Sigma Black Belt. He has been an Examiner for the Baldrige National Quality Award Board of Examiners a Judge on the International Team Excellence Competition and a Lead Judge on the National Housing Quality Award. A former Professor of Quality at the University of Wisconsin, he has experience as a quality manager in the home building industry as well as construction engineer, site manager, and in training, auditing, and consulting with expertise in strategic and operational quality improvement initiatives. His work has achieved national quality, environmental, and safety management awards for clients. 

Denis is co-author of The Executive Guide to Understanding and Implementing the Baldrige Criteria: Improve Revenue and Create Organizational Excellence.


Related Categories

PB-Best Practices