The Cost of Quality
One of my favorite observations about home building is from Houston custom builder Scott Frankel, who spoke at our Under 40 conference in San Francisco in June. Scott recounted a story about attending a seminar at a builders’ show where the speaker went around the room and asked everyone in the audience to describe how they would pitch their company’s value proposition to a prospective customer without mentioning the words “quality” or “customer service.” Not a single attendee could do it.
Scott’s presentation at the conference was on how to make a company stand out in the marketplace, and this was a great example of how talking about quality and customer service would not differentiate your company from your competitors. But to me, it also drove home just how important quality is in home building.
What Is Quality in Home Building?
Quality can mean different things to different people, but construction quality at its most basic refers to the types of materials used and the caliber of workmanship. Generally speaking, the higher the quality of the materials and workmanship, the more expensive the home will be to build.
Since the 1950s, much research time and effort has been devoted to determining what’s known as the cost of quality (COQ). But interestingly, that metric refers not to the cost of building a quality product, but rather the cost of not doing so. Business dictionaries define it this way: The cost of quality is the sum of all costs associated with poor quality or product failure, including rework, waste, and warranty costs as well as costs incurred in preventing or resolving quality problems.
A Look at COQ in Residential Construction
In order to get to the bottom of the cost of quality for our industry, IBACOS, a firm devoted to promoting innovation in building, began conducting research in 2014 on COQ in residential construction. Initial findings indicated it was possible to use money spent on responding to failures on prevention instead and realize a $6 return on a $1 investment. IBACOS decided to investigate further and developed a survey focusing on eight aspects of the building process: value engineering, jobsite waste, construction oversight, cost variance, cycle time, employee satisfaction, customer satisfaction, and warranty. Surveying began in July 2015 and 21 home builders of various sizes and in different geographic locations participated.
The results, which were written up in Quality Progress magazine by IBACOS managing director Glenn Cottrell and Denis Leonard, president of Business Excellence Consulting, revealed enormous opportunities for improvement and cost reductions. The article, “Home Improvement: Benchmarking U.S. Homebuilder Quality Metrics,” establishes benchmarks for key indicators such as inspections, rework, and slippage; waste during construction; and time and dollars spent on warranty issues. The authors maintain that once opportunities are identified, measurable improvement in performance can be achieved “by using quality management approaches and tools, and by sharing best practices to speed the learning curve.” The full article, truly worth a read, can be found on the IBACOS site. Glenn also will present some of the findings at our Housing Giants Leadership Conference.
As the longtime sponsor of the National Housing Quality Awards, Pro Builder has helped promote the dissemination of its criteria for performance and organizational excellence and it is one of the most important things we do. If you’re interested in seeing how the judging works, take a look at senior editor Mike Beirne’s in-depth examination of the process, along with the scoop on this year’s winners. And if you’re considering applying, the 2018 application will be available in November. It could be one of the most important things you do.
