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
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)