2. Quality Cost

Chapter – 2: Quality and cost It is not easy to answer whether quality costs less or more as it depends on various aspects. For example, the nature and complexity of a project, the value of timely completion, the clients perception about quality, measurement of non-quality cost etc. However, in most of  the cases, if the life-cycle-cost life-cycle-cost of the project is considered, considered, it is true to say that quality quality costs less. It is often said that quality costs money. This is partly true, but only to the extent that most organisations are not very good at identifying the real cost of ‘non-quality’. Experie Experience ncess have have shown shown that that unsati unsatisfac sfactor tory y qualit quality y leads leads to ineffic inefficien ientt utilis utilisatio ation n of  resources, waste of labour, material and equipment, time and consequently higher cost. Some consider that it costs more to create quality but the irony is that we afford to correct errors but apparen apparently tly not afford to avoid avoid them. them. In the the word wordss of Demi Deming ng - “As “As qual qualit ity y incr increas eases es  productivity increases. This fact is well known, but only to a selected few”. Quality cost can be divided into two parts: 1. Quality management cost Prevention cost - cost involved in activities to ensure right first time performance. Appraisal cost - cost involved in activities that check whether right first time is achieved. 2. Failure cost Cost of failure - cost involved in the activities which result from not conforming to right first time and includes: internal, external and intangible quality cost.

The concept of cost of quality is well explained in the diagrams below.

cost per unit of production

Economic  balance

Total cost

Prevention and Appraisal cost

Failure cost

Measure of quality ( Quality Level)

Figure

Cost of Quality (1) Source BS 6143, 1981

Cost of quality is explained in the following diagrams.

Crosby’s approach regarding the cost of quality focuses on two components, namely, the  price of conformance (POC) and the Price of non-conformance (PONC). POC includes those expenses incurred to ensure that products or services are provided as specified and represents about 3-4% of sales in well-run companies. PONC includes all of the expenses of doing wrong things and amount to 20% or more of sales in manufacturing companies and 35% of  operating cost in servicing companies. In construction, quality cost is mainly the non-conformance cost. Most of the nonconformance can be avoided by timely inspection, by the use of more experienced and skilled labour, by furnishing project teams with accurate data and responding to or managing a change instruction in a timely manner. The cost of non-conformance can be minimised on major categories, in general, by the following means: Establish acceptable criteria for the selection of subcontractor and suppliers. • Introduce training for company personnel on the use of project management • techniques including planning and co-ordinating skills and communication. Motivate site personnel to do the right thing first time. • Insist that the site personnel check the accuracy of any setting out work. • Monitor, advise, and control the performance of subcontractors and suppliers. • The Pareto diagram can be used to establish the most crucial areas of impact to increase effectiveness and efficiency to display the relative importance of causes and to choose a start  point for solving problems related to cost. It should be noted that the cost of preventing a failure in construction or design is significantly low when compared with the cost of rectification. Hence, adversarial working environments and practices need to be modified appropriately to accommodate preventive measures with the aim of improving quality. The cost of non-conformance is a valuable source of information for the contractors, designers, and clients in avoiding similar failures in future projects. The quality matrix of failure costs developed by Abdul Rahaman can be used for capturing the cost of non-conformance during construction as well as other prevention and failure costs. An example of such a quality matrix is given hereunder. (table attached) The aforementioned matrix to capture non-conformance costs is simple and useful, for both the site management and the head office. It aids the understanding of the consequences of   poor quality on a contract and identifies the sources of the problems. It was introduced and implemented successfully on a site that did not have an appropriate quality cost reporting system. Cost, quality and time

The project manager should understand the client’s requirements in terms of cost, quality, and time. He should encourage the client, in general, to achieve and maintain the balance of  cost, quality, and time. The cost-quality-time triangle is illustrated in figure hereunder. Cost

Time

Quality

Figure :

Cost-quality-time triangle

The cost can influence the quality of work, perhaps more than any other factor. Due to limited funds, a client is compelled to economise in aspects of design and construction and thus he sacrifices quality. This is perhaps when project managers or the client’s advisors should advise and decide on a feasible product and how quality can be maintained at the highest level possible. Amongst the measures to judge project success in the past were, whether the project was on time, to cost and to quality. The first two of these were easily measured and became the criteria for success of projects. Management tended to highlight only two of these; time and cost. It was considered that quality could be ensured through some form of after-the-event inspection or test, usually carried out at a sub-management level. Experience has shown this to be insufficient. Quality cannot be inspected in, it must be built in. Management systems for  controlling time and cost, if not allied with a quality management system, lead too often to inadequate quality. Among the three factors, quality, cost and time - quality should always be regarded as the most important and if it is done so, cost and time to an extent will look after themselves. Quality cost - facts and figures

In the USA, it is estimated that the cost of producing the required quality constitutes 15% of  the total cost of industrial construction. In the UK, the building Research Establishment (BRE) found that 50% of errors in buildings had their origin in the design stage and 40% of errors arose from the construction stage About 90% of the total failure events in building works were due to design and poor  workmanship. Poor quality in construction needs rectification of most defective works, which demands considerable time and cost. Robert rightly suggests that it is necessary to be critical to avoid the typical construction symptom of requiring 30% of the time and budget to complete the last 5% of the work. Deming has identified two major causes of quality problems, those caused by the system, and those caused by the individual workers. In general, 85% of quality related problems are

inherent in the system over which the individual worker has no control, whilst the remaining 15% of the problems are controlled through an operator’s action. The above data show the relevance and urgency for a need to develop and implement quality management systems, whether it is in the industrialised world or in developing countries. Quality cost and cost control

It is often difficult to measure the cost of quality; due to differing perception amongst individuals in the project especially, where the concept of quality and its management are not clear. Cost control in projects is aimed at detecting potential cost overruns before they occur to enable corrective or cost-minimising action. Using the Earned Value Analysis(EVA) or any other project cost control technique, which is mainly focused on indicating the relationship  between expenditure and budget, enables the project team and the client to be aware of cost trends for the project and forms a basis for timely corrective actions whenever unfavourable variances occur. Cost control by observing variance between budgeted and actual cost or time figures, in most of the cases, concentrates on productivity and does not consider the quality function, for  example, the cost of rework due to poor quality. Mistakes are buried and extra costs incurred are treated as poor productivity. This hides the act of poor management and obscures the need for quality improvement. In this context, a quality costing system, as mentioned above, is very important since it quantifies the cost of failure events. Traditional cost control procedures have to be modified to accommodate quality costing because costs used for cost control purposes can be utilised in quality costing.

Best value for money - Value management approach

Value Management (VM) addresses the value process during the concept, definition, implementation, and operational phases of the project. It encompasses a set of systematic and logical procedures and techniques to enhance project value throughout the life of the facility. It assists project teams to orchestrate their activities to deliver full value for the client’s investment while meeting his or her expectations. If the completed project lacks function, costs too much, is too risky, fails to satisfy the requirements, then potential value has been wasted. Value management is primarily about enhancing value and not with cutting cost. .Cutting cost without proper analysis is likely to lessen the value. Therefore, only unnecessary cost should be removed. There should be no loss of function or quality. Best value for money is more likely to be achieved through value management in the environment of partnering. The benefit to the owner from the implementation of value management can be an overall saving typically 5% to 25% of the project cost Benefit to the designer includes a collaborative agreement, a more satisfying professional service and fees to be earned from value work. The contractor can benefit from the non-confrontational

contractual and working environment and the possibility of gaining substantially from sharing the savings arising from value management. It may be concluded therefore that value management embraced by a quality system most likely reduces the cost of quality and the project life-cycle-cost as a whole. Sporadic and chronic quality problems - both result in poor quality. •

•

Sporadic - sudden change in status quo and needs restoring of status quo. Needs immediate attention, as the problem could be dramatic. Can be checked by control  process. Chronic - long standing adverse situation and the remedy is through changing status quo. These problems are often difficult to solve and are accepted as inevitable. Resolving chronic problem could achieve a breakthrough. Needs substantial time and resources for  investigation

Continuos improvement (Kaizan) tackles with both the problems. Quality costing is a tool to prove the need of quality improvement. Factual information to show the cost of poor quality • To show benefits possible from an improvement program •