The costs of not using quality: Are you willing to pay for quality in your business?
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)
About the Author
Denis Leonard
Denis Leonard has a degree in construction engineering, and an M.B.A. and a Ph.D. in quality management. He is a Fellow of the American Society for Quality and 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. 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.