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

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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)

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