A cost of quality analysis of a building project towards

A cost of quality analysis of a building project: towards a complete methodology

by

Mark Hall* and Cyril Tomkins

University of Bath School of Management Working Paper Series

2000.01

*Communications to be sent to Dr Mark Hall, Agile Construction Initiative,

School of Management, University of Bath,

BATH, BA2 7AY, U.K. e-mail: [email protected]

University of Bath School of Management Working Paper Series

University of Bath School of Management Claverton Down

Bath BA2 7AY

United Kingdom Tel: +44 1225 826742 Fax: +44 1225 826473

http://www.bath.ac.uk/management

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A cost of quality analysis of a building project: towards a

complete methodology

A number of studies have been published that claim to carry out cost of quality studies on construction projects.

These studies, however, have largely ignored the contribution of prevention and appraisal costs to COQ and

have limited their analysis to the effect for the main contractor. This paper presents a methodology for assessing

the ‘complete’ COQ for construction projects and reports on the findings of a building project in the UK on

which the methodology was piloted. The company that applied this approach has now extended it to other

projects.

Key words: quality management; cost of quality; cost of non-conformance; building

Introduction

The cost of quality (COQ) approach to the measurement, management and control of quality defects in the

production process is well established in manufacturing and service industries generally, having been in place in

its current form for five decades (Kumar and Brittain, 1995). It forms part of a collection of management

methods, which have been introduced to industries around the world, and is related to, and forms a subset of,

total quality management (TQM) (Tomkins et al, 1997).

Although the COQ technique has had a mixed response and is far from being universally applied, notable

successes in its application can be found across several of industries. These range over an early classic

application in Texas Instruments (Ittner, 1988), applications in manufacturing (see Dale and Plunkett, 1991 for a

few examples ), aspects of medicine (inter alia Robert et al, 2000 and Fernandes et al, 1997), the food industry

(inter alia Chase, 1998 and Stein and Miscikowski, 1999) and ‘high-hazard’ industries (Carrol, 1998).

Moreover., with an increasing interest in ISO 9000 certification, Kumar and Brittain (1995) considered that

COQ and related activities would gain more prominence across industrial activity generally.

One industry in which the potential of COQ is beginning to be recognised is construction. A number of studies

have been conducted in the USA (Burati et al, 1992; Davis et al, 1989), in Autralia (Love and Li, 1999; Love et

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al, 1999; Love and Li, 2000a; Love et al, 2000; Love and Li, 2000b), in Scandinavia (Nylen, 1999) and in the

UK (Abdul-Rahman et al, 1996; Barber et al, 2000). However, all previous studies of the implementation of

COQ in construction have been only partial. They have focused on rework in the construction process (and in

isolated instances, also on design) but ignored the far broader scope entailed in a complete COQ methodology.

The study reported in this paper sought to address this deficiency by interpreting the COQ methodology in far

broader terms and attempting to apply the complete methodology to a construction project. As far as we can

ascertain, this is the first time this has been attempted. Further, the study sought to adopt an overt supply-chain

perspective, aimed at achieving an optimal, integrated framework based on COQ (Yasin et al, 1999). This

perspective has also been largely ignored or poorly addressed in previous studies in construction.

Conceptual basis of COQ

COQ derives from the philosophy, espoused by Philip Crosby and others; that “quality is free” because it is the

lack of quality that increases costs (Crosby, 1979). Joseph Juran, defined the cost of poor quality as “those costs

that would disappear if our products and processes were perfect” (Juran, 1988). Estimates of the cost of quality

(or, more accurately, the cost of poor quality or non-conformance with specification) vary across industries and

between companies. In general, unless focused efforts are taken to minimise them, they are estimated to fall

between 10% and 30%, with most analyses putting them at around 20% (Atkinson et el., 1991; Nylen, 1999).

The COQ methodology is laid out broadly in BS 6143 – Parts 1 & 2 (British Standards Institute (BSI), 1990;

1992). These documents introduce the process cost model and prevention, appraisal and failures (PAF) model.

They stress the link between cost and quality – that it is of little use to achieve the required quality at a cost that

is prohibitively high and uncompetitive. Equally, achieving a competitive cost by degrading quality is also

inappropriate. The Lundvall-Juran curve (Figure 1) illustrates the traditional theory underlying COQ and shows

how cost and quality operate as a trade-off within the COQ methodology. Together, costs that arise through the

need for prevention and appraisal activities and costs due to failures represent the unnecessary additional cost

incurred in the product if all processes could operate correctly the first time. Specifically, the separate elements

of the PAF model can be defined as:

• Prevention – those activities undertaken to ensure that failures do not occur, e.g. education, training, studies

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• Appraisal – those activities undertaken to ensure that the finished product meets the desired quality, e.g.

quality checking systems

• Failures – a measure of failures to achieve the required quality of finished product and subsequent activities

undertaken to rectify those failures. They can be is subdivided into internal and external failures:

→ Internal – e.g. scrap, rework, delays

→ External – e.g. repairs, complaints, compensation

<< bring in Figure 1 about here >>

The optimum defect level shown in Figure 1 will vary according to the nature of the project – the more severe

the consequences of failure, the higher the requirement for quality performance. This view of the relationship

between prevention, appraisal and failure costs has been challenged in the literature. The modern view now is

more in accord with Morse and Poston (1989), Atkinson et al. (1991) and Foster (1996). The quality axis should

be defined more precisely as percentage conformance to specification and then one should recognise that, while

the relationship in Figure 1 is broadly appropriate for expressing static relationships, one must, over a longer

time-frame, recognise the dynamics of changing technology and knowledge and how even the acceptable degree

of compliance with specification can change. Recognising these dynamics, the objective is not just to estimate

the cost curves for prevention and appraisal and failures in order to find the optimal level of quality, but to link

identified failures and their causes with technological or work process improvements such that failure costs are

driven, over time, to be as near zero as possible (perhaps also with a tighter agreement on specifications). If

materials and processes can be relied upon to radically reduce the incidence of failures, this would enable a

reduction of prevention and appraisal activities such that almost all the PAF costs could be removed (although

there will always be some prevention costs associated with, for example, health and safety regulations). It was

with an awareness of this more complete picture of COQ and the possibilities for a more on-going and dynamic

linkage of COQ estimates with continuous improvement, that the authors approached a company in the

construction industry with a proposal to launch the pilot study. The results of this case study are reported in this

paper.

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The case study

A case study construction project was selected in order to investigate and analyse the outcomes of the

implementation of a complete COQ exercise as outlined in the BSI documents. The project was a £2.5 million

building contract undertaken on a design and build basis. The project was an office development of low

technical complexity. From the beginning of the project a great deal of emphasis was placed upon the

programme, with the client requiring a completion date during the Christmas period – a total construction period

of 38 weeks. Given our interest in developing continuous improvement through the use of the COQ

methodology, the focus for the site staff was to record and cost any internal failures as they were observed and

pursue, at that time, such additional information as was needed to make cost estimates and identify causes for

failures. Hence, this was not to be a COQ estimation procedure at the end of a period of operation or the end of a

project as many previous studies have been. Data were provided through the direct experience and observation

by individuals while supplementary information was found in the site diaries, from invoices and orders, the

project programme, allocation sheets and the bill of quantities. The quality failures data were supplemented by

data concerning prevention and appraisal costs for the project, acquired by a researcher. The researcher also

spent a considerable amount of time providing advice on implementation, ensured validity of data collection,

ensured confidentiality and mediated between individuals and organizations in order to bring academic rigour

and integrity to the collection and analysis of the data. Workshops were held at the outset to explain the nature of

quality and the importance of performance measurement and to stress the purpose of the study as being one of

learning and understanding rather than monitoring and surveillance. Efforts were also made to involve all parties

to the contract. The study was introduced to key subcontractors and suppliers in initial start-up meetings while

the consultants were also introduced to the exercise at an early stage.

Methodology

Studies elsewhere have relied primarily on after-the-event interviews with ‘key participants’ to provide data. For

example, Abdul-Rahman et al (1996) relied on sporadic interviews by a researcher to complete a quality matrix.

Elsewhere, data were collected through post-project interviews (Burati et al, 1992; Love et al, 1999; Love and

Li, 2000; Love, 2000). The approaches adopted in these studies had the drawback of relying on the memory of

the interviewees. Furthermore, they focused on quality failures for the main contractor only. This point is

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important because, in most developed construction markets such as the UK (and North America and Australia,

where the other cited studies were conducted) main contractors carry out very little physical work themselves.

Rather, they tend to manage and co-ordinate the input of a wide range and number of subcontractors and

suppliers (Harvey and Ashworth, 1993). Therefore, in terms of measuring cost of quality failures during a

construction project, the focus should be on the entire supply chain and the data collected during the construction

project while all relevant parties are still available and focusing on the project in hand. Furthermore, the previous

studies cited tended to concentrate on rework. However, this is merely one aspect of quality failures. The

definition in the literature is much broader and, in fact, when viewed in its broadest context of ‘cost of non-

conformance’ (Foster, 1996) can be seen as a means of covering the entire construction management process

rather than merely the physical construction of the product. What should be measured is any disruption to the

construction of the finished product, however that may be manifest. In this sense, what is being measured is the

flow of value to the client – where the process is interrupted or goes awry in some way, this is construed as non-

value adding. This view suggests a great virtue of the PAF model. When the costs of quality failures are

combined with costs incurred for prevention and appraisal, the sum of the costs can be seen as non-value adding

cost to the client. When deducted from the construction costs, the remainder can be classified as value adding.

Therefore, the PAF model identifies value adding activity by defining and measuring activity that is not value

adding.

The study reported in this paper developed a methodology gained from insights gained in a previous study

(Barber et al, 2000) which found that staff sensitivities to error exposure led to an unwillingness to participate in

the research and, consequently, led to the danger of under-reporting. Aware of this danger, the COQ exercise

was established in close co-operation with the site staff. They were involved at every stage of the introduction of

COQ, with their questions and concerns being addressed as fully as possible. In that there was a need for full

involvement from the project staff, it was important to ensure that they had ‘ownership’ of the research – that

they were not only involved in provision of data but also in the implementation and continuing development of

the methodology. The method applied in this study drew on the approach outlined in BS6143 but was modified

in line with the methodology described in Barber et al (2000) and Barber and Tomkins (1997). On this occasion,

the objective of the research was to conduct a ‘complete’ COQ study (prevention, appraisal and failures analysis)

on the pilot construction project. This represented a substantial change from previous studies purporting to

examine the COQ or cost of non-conformance (CONC) in construction projects. This is because those previous

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studies failed to consider prevention and appraisal costs in any meaningful way. Where they had included some

consideration of costs of quality beyond those of failure in the physical product of the construction process

(Love and Li, 1999) this consideration has been cursory at best. The study reported here represented the first

attempt to conduct a detailed COQ analysis within the construction industry in accordance with the literature. To

achieve this, the site staff were required to monitor quality failures on site through self-monitoring and

observation. This meant that the project site staff were personally responsible for recording incidents and

suggesting possible causes for the manifested effects. Consequently, the process relied on an open, ‘no-blame

culture’, where the tendency to hide or conceal quality incidents was mitigated in the knowledge that the exercise

would be used in a constructive, problem-solving and learning spirit. Each quality incident (a less pejorative

euphemism for ‘internal quality failure’) was recorded and costed by the site-based staff as it arose. In the spirit

of inclusiveness, all staff were encouraged to get involved in recording any incidents that seemed to be relevant

to the exercise, relating either to their own activities or those of other parties in the supply chain (e.g. suppliers

and subcontractors, designers and the client). Thus, the project manager, site agent, quantity surveyor and junior

staff were all involved in recording and collating data. The incidents were then categorized by activity within

PAF process model (see Table 1). Not only did this approach enable a more complete picture of quality failures

to be established, it also developed data collection and performance measurement competencies among the

participating staff. Initially, the participating staff had problems in determining exactly what constituted a quality

failure. It was decided that, in this instance, a failure would be defined as any incident that impeded the process

of construction of the building. Thus, the methodology adopted went beyond interpreting quality failures as

failure to meet specification, although it could be interpreted as complying with specification first time and

without unplanned delay. Instead, a quality failure was interpreted as an activity that failed to proceed as

‘planned’ or, in other words, an activity that was inefficient. In this sense, it reflected the view of total

performance for production being a combination of availability, efficiency and quality (Ollila and Malmipuro,

1999; Yasin et al, 1999). The researcher was in frequent contact with the staff gathering the data, to ensure that

they were thorough and appropriate and costed correctly.

An important aspect in implementing the COQ exercise on site, and in ensuring acceptance by site staff was that

the system used was simple to understand and operate. An onerous or complex system would have alienated the

staff and reduced their co-operation with the exercise and, consequently, its potential efficacy. The system

centred on a ‘logsheet’ (see Appendix). This instrument had the virtue of being immediately recognisable to the

6

site staff. The logsheet was used as a costing mechanism, with resources (labour, materials and plant) that had

been used over and above those planned, being recorded and priced using standard pricing data. In general, the

resources were deployed by subcontractors. Where subcontractors and suppliers had incurred costs that were

difficult for the staff to ascertain, estimates were made and appropriate sums included on the logsheets. One

difficulty in costing the failures lay in estimating the cost of delays to the construction process. It was established

that such delays were only relevant where they effected the construction programme’s critical path. Two

approaches were considered:

1. Devise a proxy cost for each day of delay, related to the contract liquidated and ascertained damages

(LADs). This approach had been adopted in a previous study (Barber et al, 2000).

2. Estimate the costs related to accelerating aspects of the work to ensure the programme remained unaffected.

It was agreed that the second option was more appropriate as it reflected real activities taken on site.

The logsheet was supplemented by use of a ‘whiteboard’, located in the site office. This was useful in making the

exercise visible, thereby reducing any mistrust at the site level. The whiteboard was open for use by any

personnel involved in the construction project, included those employed by subcontractors and suppliers. It acted

as a first point of consideration, where possible failures were simply listed by people who had observed, or were

aware of, their occurrence. The facts of each incident were then considered and a decision made on whether it

should be recorded on a logsheet. The quality failures data were supplemented by data from the bill of quantities,

which were used to compile figures for prevention and appraisal costs.

While it cannot be said that the approach described above would capture every single quality failure or capture

all prevention and appraisal costs, compared with previous studies, it can probably be regarded as being the most

thorough and rigorous available.

The overall aim of the COQ exercise was to achieve a number of anticipated outcomes. These were:

1. A carefully constructed PAF model (British Standards Institute, 1990). Combined with a view of production

as a process as outlined above and in the British Standard (1992), the goal was to produce a tool that could

be used to support senior management decision-making as an on-going improvement process.

2. An investigation into and understanding of the causes of quality problems through causal analysis.

7

3. An absolute figure for COQ failures, that might have a strong impact, were it to be disseminated and against

which future projects could be compared allowing measurement of the effects of learning, policy changes

and continuous improvement initiatives.

4. Perhaps, most importantly, the effect of encouraging a cultural change among those who participated in the

exercise, focusing their attention on quality issues generally and the importance of minimising quality

failures, both at a site level and along the supply chain.

Findings and analysis

The quality failures data were analysed on a frequent, cumulative basis to provide a developing picture of the

cost of internal quality failures for the construction project. These data were supplemented by figures for

prevention and appraisal activities, taken primarily from the bill of quantities. The findings are divided into three

sections, the first analysing the cost data, the second providing an analysis of the cost of delay as a subset of the

quality failures and the third section illustrating the causal data.

Cost analysis

After checking the logsheets for validity through regular reviews, the data were divided between pre-determined

processes in order to populate the PAF model (see Table 1). The processes were identified as elements of the

building being studied. They were chosen for both their generic nature and their usefulness to the participating

company, who wished to compare results across a number of projects. An inherent flexibility of the PAF model

is that ‘process’ can be defined in a number of ways. For example, the ‘processes’ could be specific trades or

subcontractors, as shown by Love (2000).

<< bring in Table 1 about here >>

Table 1 shows the breakdown of the COQ costs for different processes for the construction project. The total

COQ (the sum of the non-value adding costs) recorded for the project was £428,441, while the cost of quality

failures, which formed a part of that figure, was £135,140. The BSI documentation provides only a vague

description of the type of incidents that might be included in the external failures category, and includes

reference to loss of customer goodwill, etc. However, the original COQ categorisation (Feigenbaum, 1956;

8

Oakland, 1993) restricts external quality failures to costs that occur after the product or services have been

transferred to the customer (Tsai, 1998). In this definition, snagging-type activities (included in this analysis)

would be external failures and this would mean that these had also been included within the study. Lost customer

goodwill, damaged company reputation, etc. could be included in the category of “lost opportunities” (Field, and

Swift, 1996) and would remain difficult or impossible to measure.

The total cost to the client, shown in Table 1 excludes design fees, contingencies and profit to the contractor, as

the exercise was limited to the construction process only. The appraisal and prevention costs were identified

through a review of the bill of quantities (BQ). It was established that a substantial proportion of the

preliminaries section of the BQ were inherently either appraisal or prevention costs. While they may have been

necessary, they did not, in fact, contribute to the final constructed product and, thus, were non-value adding. For

example, substantial items were:

• Hoarding – preventing ingress and escape from the construction site.

• Non-productive labour – employed in moving materials and equipment around the site, etc.

• Site staff – to ensure that the works progress to plan while preventing accidents, resolving problems as they

arose and ensuring that quality met the prescribed specification, etc.

The costed logsheets included time for site staff where this was relevant. While the time site staff were normally

involved in prevention and appraisal activities was included within the model as prevention and appraisal costs,

when they were ‘diverted’ from their usual activities by having to spend extra time to resolve quality failures the

additional costs associated with this were included in the calculations. Were there to be no quality failures, the

consequent ‘freeing up’ of staff time could mean savings in overheads as staff could be deployed elsewhere. For

each BQ item, a view was taken on whether it was prevention, appraisal or both, and a decision was taken on

where to allocate the cost within the PAF model. For example, the staff costs (the largest single non-value adding

cost) were classified as both prevention and appraisal and were distributed between the construction processes.

There was inevitably a degree of subjectivity in this operation. In some instances, it was unclear whether an item

was prevention or appraisal (indeed, the difficulty in distinguishing between prevention and appraisal costs is

noted in the British Standard and, in the instance of this study, included items such as non-productive labour and

temporary accommodation), which led to the inclusion of the ‘Other’ category.

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In total, 180 incidents were recorded, of which 166 were deemed to merit inclusion within the PAF model (an

average of 4.3 incidents per week). These incidents were resourced and costed by site staff using standard data.

The distribution of the incidents is shown in Table 2. The table shows that the vast majority of incidents were

defined as small or very small in terms of cost, but that together, they accounted for only 27% of the total cost of

quality failure. By far the largest contribution to the cost of quality failures (52%) were from the four incidents

categorized as either large or very large. In seeking a Pareto-relationship (Saket et al, 1986), it was found that the

19 incidents costed over £1000 (representing 12% of the total number of incidents) accounted for 73% of the

total cost of all quality failures (a relationship that was, in fact, closer to Deming’s (1986) 85/15 rule). This

finding would appear to support previous studies (Barber et al, 2000).


When the data within the PAF model were analysed more closely (Table 3) it was found that quality failures

accounted for 5.84% of the contract sum while prevention, appraisal and other activities accounted for 12.68%

of the contract sum. This meant that the ‘value adding’ proportion of the contract sum was 81.48%. Focusing

specifically on the individual processes, it was found that, as a proportion of the cost of each process, failures

were greatest in the groundworks and substructure (C) and finishes (J) and least in demolition (B). While there

were a large number of failures relating to groundworks and substructure, there were relatively few relating to

finishes. The highest number of quality failures related to the external envelope (E), although the average cost of

these incidents was lower than other processes and the cost of the failures as a percentage of the cost of the

process was also relatively low. It should be noted that the high average cost of the failures associated with

finishes was partly due to the fact that, in some instances, a number of incidents relating to specific trades were

aggregated onto single logsheets. Had these been separately listed, the number of failures would have been far

greater. Table 3 is particularly interesting as it shows the relationship between money spent on prevention,

appraisal and other non-value adding activities in relation to the quality failures costs. It can be seen that the

highest of these costs, as a proportion of the associated process, were in preliminaries (A) and groundworks and

substructure.


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Finally, the cost of quality failures were analysed in terms of their development over the period of the

construction project (Figure 2). It was found that the cost of quality failures steadily increased as the project

progressed until the final two months, where a sharp rise in the cost of quality failures was evident. There are a

number of explanations for this phenomenon. Firstly, the finishes were undertaken during this period which

represented a concentration of quality failures in a short space of time. Secondly, supervision (prevention and

appraisal costs) were scaled down during this period as staff moved to different projects, thus providing greater

scope for errors and mistakes to occur. However, perhaps the most important factor was that two of the largest

incidents occurred at this time. However, these were, in fact, ‘latent’ failures in that they had occurred earlier in

the project (during groundworks) but had not become apparent until the end of the project. Thus, the distribution

of quality failures over the duration of the project is probably distorted.

<< bring in Figure 2 about here >>

Analysis of delay

One aspect of the measurement of quality incidents that has caused controversy in previous studies was an

accurate measurement of the impact of programme delays (Nylen, 1999; Barber et al, 2000). Where programme

delays affected the critical path, they were found to have a significant effect on the cumulative cost of quality as

they impacted on later activities. Previous measurement of this phenomenon has been unsatisfactory – for each

day of delay, the costs were deemed to be equal to the contractual LADs for the project. The LADs were used as

a proxy measure for costs incurred through acceleration and increased resourcing, whether LADs were actually

levied or not. For this study, programme delays were measured more precisely. Where an event impacted the

critical path, an estimate was made of the resources that would be required to accelerate the work in order to get

the project back on programme. The resources were noted separately and incorporated within the overall cost of

the incident. As a result of this closer examination, Table 4 was produced. It can be seen that value adding costs

formed 81% of the total project cost, while prevention, appraisal and other non-value adding costs totalled 13%

of the project cost. Internal quality failures accounted for 5% of the project cost while the cost of programme

delays (which formed a subset of quality failures) formed only 1% of the project cost.


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Causal analysis

The quality failures were analysed to determine cause and divided into the following categories:

• Communications e.g. poor information control, misunderstandings.

• Plant and equipment e.g. breakdowns, punctures.

• Personnel e.g. carelessness, lack of training, poor workmanship, sickness.

• Design e.g. mistakes that ‘get on to’ the construction site.

• Management e.g. lack of planning, errors, poor organisation.

• Suppliers (including subcontractors) e.g. poor selection, errors and mistakes.

• Force majeure e.g. third parties, weather, ground conditions.

These categories were identified in previous studies (Barber et al, 2000) and supplemented by additional

categories that became apparent during the analysis itself. The findings of the causal analyses were aggregated

by absolute numbers and cost failures, shown in Table 5. In terms of absolute numbers of incidents, force

majeure type incidents were very infrequent (2%). The majority of incidents were attributable to errors and

mistakes by specific individuals (22%) or to supplier errors (27%). Management and communication problems,

both attributable to the main contractor, totalled 25% of the incidents. It was surprising, bearing in mind the

proportion of work that was subcontracted, that suppliers did not account for a larger proportion of the incidents.

However, it should be remembered that many of the incidents attributed to personnel were the fault of

subcontractors’ employees, while the majority of the plant was supplied by third parties. Furthermore, when the

quality failures were analysed in terms of relative cost, it was found that the vast majority of incidents (55%)

were attributable to suppliers.


This analysis of the causes of the quality failures arising during the project should be viewed with caution. The

categories simplify a more complex picture. For example, mistakes by specific individuals might be attributable

to the main contractor’s or suppliers’ employees and their ‘root’ causes were diverse, including lack of training

and inexperience. Similarly, the ‘root’ cause of suppliers’ errors may in fact have been poor selection of specific

suppliers in the first instance, or poor co-ordination of different trades. This is an important point, as the

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tendency in viewing the figures is to attribute blame. However, their purpose was to provide an overview of the

issues and indicate the direction for corrective measures and change management.

An unexpected finding of the causal analysis activity was a general impression of closer integration throughout

the supply chain. Representatives of the client, main contractor, principle consultants, key subcontractors and

major suppliers, were brought together in a joint forum, in a spirit of openness and participation. In the ensuing

dialogue, selected quality failure incidents were discussed from the multiple perspectives of the different

participants, which led to a shared understanding of the complex series of events that gave rise to many of the

incidents up for consideration. Thus, participation in the causal analysis process itself prompted a change in

attitude among the individuals working on the project. There was a realisation that problems were rarely the

consequence of any specific individual but the result of a wide range of causes, that organizations and their

employees worked within constraints often beyond their control and that sharing problems and working together

to find solutions would not only benefit the client in delivery of a final product (the building) of greater integrity

but also benefit themselves in improved margins, reduced stress and aggravation and enhanced reputations.

More specifically, the causal analysis sessions were recorded and analysis of those recordings revealed a number

of common issues (‘root’ causes) that indicated directions for possible improvement in the future and learning

themes that, together, could lead to reduced quality failure costs on future projects. These included:

• More careful selection of suppliers and subcontractors – selection on a basis of best out-turn value rather

than lowest initial cost.

• In design and build contracts, a closer and earlier involvement of the main contractor in the design process

with more consideration of buildability issues.

• Consideration of ways in which information from the planning stage could be transferred to the design and

construction stages more effectively.

• More involvement of key suppliers and subcontractors in the design stage of the project which would mean

an earlier commitment to those suppliers and subcontractors by the main contractor. This would suggest

that, for certain trades and services, strategic partnering arrangements should be established.

• Identification of common and recurring mistakes and errors that could be considered at the beginning of

future, similar projects and where effort by site staff can be directed.

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• Better consideration of the training needs of suppliers’ and subcontractors’ employees and a co-ordinated,

joint approach to setting training targets and seeing that these are achieved.

• A long-term strategic approach to tackling a culture of complacency that was identified to exist among

suppliers of, for example, plant and certain manufactured products that were incorporated into the finished

building.

Discussion

While the analysis of COQ on the case study project was exemplary (within the construction sector) in terms of

the richness of the data collected and the detail and depth of analysis, the findings were by no means completely

valid (hence the paper title suggests moving towards a complete methodology). There were a number of areas

where data were likely to be under-reported or were incomplete. For example, although the findings suggest that

the cost of quality failures was quite low (approximately 6%), there is a possibility that the findings were an

underestimate of the ‘true’ cost of quality failures. Apart from the likelihood of general under-reporting, the

costed incidents failed to capture the ‘full’ cost implications along the supply chain. One reason is because it was

impossible for the site staff to make an entirely accurate assessment of the implications of quality failures for

suppliers and subcontractors beyond a ‘reasonable’ estimate. Participation from subcontractors and suppliers was

admirable but reporting and/or confirmation of costs incurred was patchy and there was doubt as to whether the

suppliers recognised the full implications of incidents for themselves and their suppliers in any case.

A further factor, which should be considered in a ‘complete’ analysis, is the extent to which overheads (to which

the project made a contribution) should be included for prevention and appraisal activities. Indeed, there is a

reasonable argument that many overheads are non-value adding (e.g. training, quality assurance systems,

checking invoices, etc.) and the project’s entire contribution to overheads should be included in the PAF model.

Additionally, bearing in mind that the contract was design and build, the analysis also failed to consider

incidences of quality failures within the design process itself and, therefore, the cost of the design element was

removed from the contract cost in conducting the analysis. While some quality failure logsheets were recorded

during the design phase where perceived quality failures had occurred, it was found difficult to integrate these

into the model as there seemed to be considerable overlap with construction phase events – the logsheets from

the design phase became manifest in the construction phase. If this were the case, design fees should remain in

14

the analysis as the implications of design quality failures could be regarded as having being been captured after

all. This remains an unresolved issue. Incidentally, the presence of implicit prevention and appraisal costs within

contract sum applies to design fees as much as it applies to other supplier activity.

An additional concern was that the prevention and appraisal costs were also underestimated. This was because of

the high degree of subcontracted work. While it was possible to make a fairly close analysis of the prevention

and appraisal costs incurred by the main contractor, subcontract and supplier contributions to the project cost

were included as being entirely value adding. However, their costs would also include an element for prevention

and appraisal, which was not considered in the analysis. Were each subcontractor and supplier to have costs of a

similar order to that of the main contractor (prevention and appraisal costs accounted for 13% of the project

cost) the total prevention and appraisal costs for the project would be far higher. While it would be difficult to

assess the prevention and appraisal costs for all subcontractors and suppliers, it might be possible to estimate the

total through the supply chain based on the assessment of a representative sample. Another approach would be to

conduct a Pareto analysis of suppliers and subcontractors, identifying those that contributed the most substantial

value to the project and undertake a detailed analysis of their prevention and appraisal costs only. Naturally, such

an approach would have confidentiality implications.

Finally, while our objective to introduce a dynamic procedure for continuing improvement based upon COQ was

achieved to a considerable extent in so far as data gathering and interpretation was on-going and used for

correction, where possible, throughout the project, there was no significant move to reduce prevention and

appraisal costs as a result of reducing failure costs. It would seem that this requires a perception that failure

reduction has been achieved consistently over several projects before confidence is gained to cut prevention and

appraisal activities. Even so, a very senior manager in the company, but not associated with the initial

application of this pilot study stated informally:

I was sceptical at first, but I have been won over and now we will be applying cost of quality analysis in

this way over other projects. Ongoing cost of quality enables root cause detection and fast rectification.

To this we would add that to fast rectification can be added the prospect of prevention and appraisal cost

reduction.

15

Conclusions

When conducting the study, it was found that, rather than merely capturing the cost of quality failures in terms of

rework, what was really being captured was the cost of failures in the management and communication process.

The categories arising during the causal analysis revealed that rework and scrap were only one element of failure

cost and that a study limited to them does not reveal the range of causes leading to quality failures. Further, it

was found that when quality incidents occurred, their effect was to further disrupt the management and

communication process, by diverting managerial effort. When seen from this perspective, COQ has the potential

to become much more than a tool of ‘final’ analysis. Rather, it could be seen as a potential means of measuring

and assessing the waste resident within the entire procurement process, with causal analysis being a means of

identifying ways of reducing said waste.

An important finding of the research exercise was that it appeared to refute the contention that cost of quality

failures represent the largest category of the PAF relationship (Israel and Fisher, 1991) representing “70-85% of

the COQ in most organizations” (Johnson, 1995). This assertion would explain why the previous studies in

construction have focused almost entirely on the quality failures element to the exclusion of prevention and

appraisal costs. Indeed, it has been argued elsewhere that analysis of COQ should ignore prevention and

appraisal costs as these are vital in achieving the required quality (Nylen, 1999), although, as argued earlier, this

does not take fully into account the dynamics of possible continued improvement. The findings from this study

suggest that quality failures are actually quite small and that prevention and appraisal costs are much higher,

providing the greatest scope for reducing non-value adding costs. This would suggest that the aim should be to

find ways of reducing the cost of quality failures while ensuring that the related prevention and appraisal costs do

not escalate beyond the return in failure reduction, as illustrated in Figure 1. Over time, as systems and processes

are developed to eradicate quality failures, and these become embodied within the organization’s policies and

procedures (for example, strategic partnering) prevention and appraisal costs might also be further reduced.

Thus, a step-change would be observed in the prevention and appraisal curve. A thorough COQ analysis such as

the one presented in this paper provides the necessary information to investigate ways of reducing all aspects that

fail to add value to the final constructed product. It would also be interesting to determine whether the

relationship between prevention, appraisal and failure costs observed in this study was unique to the construction

16

industry or whether inaccurate studies elsewhere have led to a mistaken belief that quality failures are so large

relative to prevention and appraisal costs.

The case study investigation satisfactorily fulfilled the first three aims of the exercise, namely to develop:

1. A carefully constructed PAF model to support senior management decision-making.

2. An understanding of the causes of quality problems through causal analysis.

3. An absolute figure for COQ failures against which future projects can be compared allowing measurement

of the effects of learning, policy changes and continuous improvement initiatives.

However, the fourth item (a change in culture and attitude to quality) is difficult to measure. One observed

impact of the process, which may qualify as a change in attitude and culture, was a gradual improving of

relationships along the entire supply chain. Although this may have occurred during the natural course of the

project, in terms of quality, it manifested itself in a better understanding and appreciation of the constraints,

imposed both by third parties and other parties along the supply chain, on organizations achieving appropriate

quality standards. This led to the realization that, particularly when the project is under design and build, the

quality and integrity of the constructed product is reliant not only on organizations focusing on their own

activities but also on how those activities impinge upon others and how, through communication and

thoughtfulness, they can help others to deliver quality. Supply chain relationships and interaction are the key to

delivering quality and attention should be focused on this aspect in improvement attempts.

As the study progressed, it emerged that there were a number of areas that might receive closer examination in

future studies. First, although a review of the available literature suggests that this is the most thorough and

rigorous COQ study to have been conducted in the construction industry, there remains scope for improving the

data validity and reliability. For example, future studies might use more complete costing, including better and

more thorough attention to costs manifest down the supply chain. Similarly, future studies could involve closer

analysis of programme delays and the critical path. The fact that an activity was delayed, but not on the initial

critical path, should not necessarily exclude consideration of the delay within the costing process. The delay on

initially non-critical activities may alter the subsequent critical path, making previously non-critical activities

critical. For example, it might be worth considering the potential to link COQ analysis into the software designed

to map construction programmes.

17

Finally, the study produced a large amount of information of both a strategic and operational nature. The

participating contractor now has a substantial amount of data at its disposal. Indeed, so pleased was the company

with the results of the case study that they have extended the exercise to a number of new projects and the

quantity of data, and their understanding of how they add value to the construction process, is set to increase

dramatically. If they are able to disseminate the knowledge resident in the data across the company, could result

in important benefits in reduced transaction and quality failure costs and improved supplier and subcontractor

relationships. This could enable the company to differentiate itself from its competitors (notoriously difficult to

do in the construction industry) through delivery of better and more reliable quality at the same or better margins

for the contractor and its supply chain while maintaining a competitive price for its clients. The key difficulty for

the company lies in finding a means of transferring the lessons learnt throughout its organization and engaging

the supply chain in that learning process.

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20

Appendix

Cause EffectRef. Resource Quantity Unit Rate Total CostDate Engineers hours 0Time QS hours 0

Previous Sheets Contract Surveyors hours 0Process For PAF model Foremen hours 0

Description of Event:- Gangerman hours 0Labourers hours 0Scaffolders hours 0Steel Fixers hours 0Joiners hours 0Welders hours 0Painters hours 0Drivers inc lorry hours 0

Programme Effects:- Purchasing hours 0Admin. hours 0Inspectors hours 0Carpenters hours 0Contracts man hours 0

Activity Being Undertaken:- Bricklayers hours 0Site manager hours 0360 excav inc dri hours 0

Learning Outcomes:- Other Costs:- Cost (C) Subtotal 0

b/f A 0b/f B 0

Additional Plant Required:- Cost (A) b/f C 0

0Additional Materials Required:- Cost (B)

0 0 Total 0

17-Nov-99

in these cells.For example, subcontract

example

if thought necessaryas appropriate

Immediate ’apparent’ cause should be put here as prompt for later analysis

lump sum quotations couldgo here.

The sum of this item is here

Resources Required

The person completingthe sheet can placeanything not included above

This is a description of a Cost of Quality Incident. As you can see, the text wraps automatically in this box - one simply has to click on the box and type as usual. The boxes below are formatted to ’wrap’ in the same way.

This box has been found to be paticularly important in previous Agile studies as a non-productive activity (quality failure) that effects the critical path in the programme can have profound cost implictions

This box also acts as a ’prompt’ for later analysis.

This box is intended to provide the opportunity to record any obvious ways things could be done differently in future.

COST OF QUALITY LOGSHEET

For recording items of plant involved in incident

For recording materials involved in incident

See ’Cause’ box.

Optimum

Cost of preventionand appraisal

Cost of quality failures

Improving quality

Increasingcost

Total costs of prevention, apprasal

and failures

Figure 1. Optimisation of quality and cost (Foster, 1996)

21

Table 1. PAF model illustrating costs for case study project

Prevention Appraisal Others Failures

Preliminaries 332,513 56,930 9,052 7,491 9,182 249,858

Demolition 65,121 2,450 1,754 1,247 403 59,267

Groundworks and substructure 282,764 32,117 9,894 5,734 73,764 161,255

Frame 215,825 8,597 6,155 4,376 5,902 190,795

External envelope 365,072 19,821 11,211 7,545 16,280 310,215

Internal construction activities 153,902 12,388 4,473 3,181 3,601 130,259

Mechanical and electrical installation 207,884 7,821 5,600 3,982 4,314 186,167

Roof 134,857 7,995 6,579 3,434 3,024 113,825

Finishes 129,094 8,891 3,752 2,668 11,884 101,899

External works 426,542 17,152 12,280 8,731 6,786 381,593

Total 2,313,574 174,162 70,750 48,389 135,140 1,885,133

Total cost to client £)

ProcessNon-value adding costs (£) Value adding

costs (£)

Table 2. Distribution of quality failures

Totals 166 135,140 814

10001+ (very large) 2 53,518 26,759

5001-10000 (large) 2 16,141 8,071

1001-5000 (medium) 15 29,194 1,946

501-1000 (small) 18 12,374 687

1-500 (very small) 129 23,913 185

Category (£)Number of Incidents

Total Cost of Incidents (£)

Average Cost/ Incident (£)

22

Table 3. PAF model expressed in proportions

P, A and O* Failures

Preliminaries 332,513 14 22.10 2.76 75.14

Demolition 65,121 2 8.37 0.62 91.01

Groundworks and substructure 282,764 30 16.89 26.09 57.03

Frame 215,825 10 8.86 2.73 88.40

External envelope 365,072 41 10.57 4.46 84.97

Internal construction activities 153,902 16 13.02 2.34 84.64

Mechanical and electrical installation 207,884 15 8.37 2.08 89.55

Roof 134,857 7 13.35 2.24 84.40

Finishes 129,094 17 11.86 9.21 78.93

External works 426,542 14 8.95 1.59 89.46

Total 2,313,574 166 12.68 5.84 81.48* P = Prevention, A = Appraisal, O = Others

Non-value adding costs (%)No. quality failures

ProcessTotal cost to

client (£)Value adding

costs (%)

23

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

April May June July August September October November December January

Month

CO

Q/m

onth

(£)

0

20000

40000

60000

80000

100000

120000

140000

160000

Cum

ulat

ive

CO

Q (

£)

Figure 2. Distribution of cost of quality failures over the period of the case study project

Table 4. Delay costs as a proportion of other project costs

Prevention, appraisal and others 293,300 12.68

Quality failures 109,454 4.73

Delays to programme 25,685 1.11

Value adding costs 1,885,137 81.48

Total project costs 2,313,576

Cost (£) Percentage

Table 5. Causal analysis of quality failures

24

Communications 15 9.04 4746 3.51

Plant and equipment 21 12.65 4439 3.28

Personnel 37 22.29 24155 17.87

Design 18 10.84 7859 5.82

Management 26 15.66 17405 12.88

Suppliers 46 27.71 74368 55.03

Force majuere 3 1.81 2168 1.60

Total 166 135139

PercentageCauseNo. of failures

PercentageCost of

incidents (£)

A cost of quality analysis of a building project towards

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