Cost of quality in construction is the cost incurred by the company in attaining and maintaining good quality throughout the product's operational life to achieve the highest level of customer satisfaction.
Thanks to the increasingly competitive business market, one is spoilt for choices when it comes down to finalizing a product. To stay ahead of the game, companies are being innovative and willing to go the extra mile to pander to the customer-driven market. Not only should the products' final price be competitive, but it also must be exceptional in quality.
Organizations use the 'Cost of Quality' factor as an added advantage. A company can either reduce the probability of failure by investing in the upfront quality costs or pay when customers detect the faults. It is often seen that companies choose the latter of the two, and eventually suffer in the long run.
1. Expert Views on Cost of Quality
Quality gurus such as Juran and Feigenbaum questioned the widely accepted concept—increasing the quality will increase the cost, and higher quality will lead to higher costs.
Juran carried out a study on the economics of quality and found that the benefits of better quality outweigh the costs. Feigenbaum introduced the concept of 'total quality control,' stating that maintaining quality should be a priority across all levels. Philip Crosby wrote a book 'Quality is Free' and stated, "Do things right in the first place, and you won't have to pay to fix them or do them over."
2. What is Cost of Quality?
Cost of quality (CoQ) is a widely used term that is frequently misinterpreted as well.
Every time rework is undertaken, the cost of quality increases. This information can be used to work out the potential savings, which can be achieved by improving the overall process.
The cost of quality is the sum of the cost of good quality (CoGQ) and cost of poor quality (CoPQ). It can be represented by the following equation:
CoQ = CoGQ + CoPQ
The cost of quality must include all the costs related to the quality of the product in order to reduce or eliminate failures, process control costs required for maintaining quality levels, and costs related to internal and external failures.
3. Types of Quality Costs
Quality costs can be classified into two main categories: cost of conformance and cost of non-conformance.
3.1 Cost of Conformance
The cost of conformance is better known as the cost of good quality (CoGQ). It is the amount of money spent in order to avoid failures during the project. In a construction project, this includes training, testing, audits, calibration, and maintenance. The cost of conformance can be further subdivided into prevention costs and appraisal costs.
3.1.1 Prevention Costs
Prevention costs are incurred from the activities that help to restrict failure to a minimum level. These are for avoiding quality problems. These costs are related to the quality management system’s design, implementation, and maintenance. Prevention costs are expected to increase over time as more preventive activities will take up additional time of the project schedule.
In a construction project, prevention costs include establishing product specifications, quality planning, testing of materials, design or constructability reviews, providing training to all the employees and labors, etc.
3.1.2 Appraisal Costs
Appraisal costs are incurred to maintain and monitor the quality of products so that they adhere to the acceptable standards. These costs are associated with the evaluation of products and services to ensure that they conform to the aspired specifications and customers' requirements. When processes improve over time, appraisal costs will decrease as the need for inspection of quality reduces.
In a construction project, appraisal costs include inspections of incoming materials, supplier assessments, quality audits, checking fixtures, etc.
3.2 Cost of Non-Conformance
The cost of non-conformance is the cost of poor quality (CoPQ). The amount of money spent due to failures during and after the project forms the cost of non-conformance. Rework, repairs, scrap, complaint handling, etc. form a part of CoPQ in construction projects.
3.2.1 Internal Failures
Internal failure is a scenario in which defects are found in product/service before it leaves the company's facility, and the costs incurred are from rectifying the same before it reaches the customer. In a construction project, rework, repair, scrap, downtime, evaluation of defects, machinery breakdown due to improper maintenance, etc. count as internal failure costs.
3.2.2 External Failures
External failure is when the customer's requirements are not satisfied by the product. The associated costs are customer returns and allowances, warranty claims, evaluation of customer complaints, service and repair costs, product or material returns, etc.
4. Optimum Cost of Quality
Complete elimination of failure will create an ideal situation. The below graph represents that as the costs approach infinity in order to avoid failures during a project, the quality of the product also increases. The internal and external failure costs approach zero as the quality increases. It can be seen that attaining zero defects might not be a practical solution, as the total cost of quality is not minimum. The optimum CoQ must be adopted, keeping both the attributes in mind.
CoQ defines and measures the extent to which an organization's resources are used to avoid poor quality and maintain the quality of the products or services against the costs due to internal or external failures.
The cost of quality can be derived using an equation. It is the sum of cost of good quality (CoGQ) and cost of poor quality (CoPQ).
Internal failures are the defects found in product/service before it leaves the company's facility. External failure takes place when the customer's requirements are not satisfied by the product.