Review of key information on COQ and Rework in Construction and Home Building

1. CCoosstt ooff QQuuaalliittyy && RReewwoorrkk
IInn HHoommee BBuuiillddiinngg
Denis Leonard Ph.D.

4. Pheng, L.S & Ke-Wei, P (1996) A Framework for Implementing TQM
in Construction, The TQM Magazine, Vol 8 No 5, pp 39-46

5. CCoonnssttrruuccttiioonn RReewwoorrkk CCoossttss
Rework costs for a study of 260 construction projects:
Mean $ Mean % of contract value
Indirect 1,072,287 5.43
Direct 1,186,398 5.56
Total 2,257,340 11.07

6. PPrroobbaabbiilliittyy ffoorr RReewwoorrkk
Love & Sing, 2013

7. FFRRII RReewwoorrkk DDaannggeerr CChhaarrtt

8. FFRRII WWaarrnnss ooff CCoosstt GGrroowwtthh
FRI Score Cost Growth
(%)
>45 25.8%
30-45 6.0%
<30 -7.8%
SAVINGS!

9. FFRRII WWaarrnnss OOFF FFiieelldd RReewwoorrkk
aanndd CCoosstt GGrroowwtthh
• For Database
– Warning for field rework and for cost growth
about equal
– FRI target of <30 is good for both

11. RReessiiddeennttiiaall CCoonnssttrruuccttiioonn CCoossttss
• 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)

12. CCoonnssttrruuccttiioonn QQuuaalliittyy
(Xiao & Proverbs, 2002)
Low cost and speedy construction should
not be achieved at the expense of the
quality of the project. In fact, poor quality
performance results in increased rework,
which has significant cost and schedule
implications. Doing thing the right way the
first time is achievable.

13. CCoonnssttrruuccttiioonn QQuuaalliittyy
(Xiao & Proverbs, 2002)
The cost of correcting deviations from
stated requirements is in the region of 12
percent of project cost, whereas the cost of
providing TQM is between 1-5 percent.

14. CCoonnssttrruuccttiioonn QQuuaalliittyy
(Salem, Solomon, Genaidy & Leugring, 2005)
The commitment of the top management for
the implementation of these (quality) tools
may prove to be the most important factor
in successful implementation.

15. CCoonnssttrruuccttiioonn QQuuaalliittyy
(Rahman, Kwan & Woods 1999)
Traditional method to control quality is to
look for defects correct them and prevent
them from recurring, but with new
customers or products it is about customer
requirements and starting upstream at the
design concept stage

16. CCoonnssttrruuccttiioonn QQuuaalliittyy
(Barrat, 2000)
A combination of sound formal systems and
strong relationships is essential to achieve
high quality in the project environment of
construction, both within companies and
across the supply network.

17. CCoonnssttrruuccttiioonn QQuuaalliittyy
(Haupt & Whitman 2003)
The construction industry has been slow to embrace the concept of
TQM. While companies implement quality in their offices and
management operations few can transfer this to field operations.
Inhibiting factors include:
• Too much paperwork
• Subs and trades not interested
• Low bid subcontracting
• Field managers seeing quality irrelevant
• Transient workforce
• Low education level of field workforce
• Short term focus on cost savings
• Too tight scheduling

18. QQuuaalliittyy ooff CCoonnssttrruuccttiioonn
(FIDIC Exectutive Committee, 2004)
Actions could include:
• Recognise the importance of quality of construction.
• Adopt quality management systems.
• Provide procedures for corrective action when quality
control and /or acceptance criteria are not met.
• Recruit, train and assign a skilled work force.
• Take measures to ensure that subcontractors are qualified,
and/or licensed as required.

19. TTHHEE IIMMPPAACCTT OOFF QQUUAALLIITTYY
IINN HHOOMMEE BBUUIILLDDIINNGG

20. CCoosstt ooff RReewwoorrkk
• Cost of rework in commercial
construction 12.4% of total contract cost
• In residential construction 4.1%
• Mean defect cost $4500
Benchmarking Construction Rework in Australian Housing, Mills, Williams & Yu, Int. Journal for Housing Science, Vol.34,
No.3 pp. 207-220, 2010

21. SSccootttt SSeeddaamm
• 2010 survey 497 trades
• 12.3% got all the information needed
• 20% of plan errors add trip at an average
cost of $201 per trip

22. TThhee MMaarrkkeett ffoorr QQuuaalliittyy
IInn HHoommee BBuuiillddiinngg
May 2009

23. AAvveerraaggee BBuuiillddiinngg CCooddee FFaaiilluurree RRaatteess
SSaann DDiieeggoo CCAA 11999999--22000033

24. DDeeffeeccttss iinn HHoommeess
• 15-20% of new homes nationally do not
meet reasonable standards.
• This includes roof framing, waterproofing,
drainage and weather-tightness.
Disputed Survey Finds Many Flaws in New Homes
Sacramento Business Journal, 7/25/03

25. DDeeffeeccttss iinn HHoommeess
• Data captured by Quality Built field
inspectors on 31,995 completed homes and
condominiums across 27 U.S. states for the
12-month period ending October 1, 2005.
• Single-family homes averaged $5,398 in
corrected defects per home in 2005
• Multi-family homes and mixed commercial
use construction averaged $4,556 in
corrected defects.
Nation’s Leading Risk Management Company Releases Top Builder Defect Data for
Construction Industry
Quality Built® Data Shows Builder Top Risk Issues Are Preventable Media Kit :
Orlando, Fla., Jan. 11, 2006 — (International Builders’ Show)

26. CCoonnssttrruuccttiioonnss SSeevveenn DDeeaaddllyy SSiinnss
Since 1994 200,000 homes built under this program
Combined risk savings (builder & insurance co) $1B
1. Technical Design
2. Communication
3. Builder Knowledge
4. Process
5. Customer Service
6. Claims & Data
7. Sales & Safety
Quality Initiatives & Trends in the Housing Industry, 2005,
Stan Luhr, Quality Built

27. KKaaiizzeenn IImmppaaccttss
Modular homebuilding company study
• As a result of the study/implementation of Kaizen
– 59% labor productivity gain
– 22% cycle time reduction
US DOE Building America
Industrialized Housing Partnership
Manufacturing /Construction Productivity
2005

28. KKaaiizzeenn IImmppaaccttss
Metric Categories of
1. Customer Satisfaction
2. Operational Performance
3. Financial Performance
4. Team Member Satisfaction
5. Community Service
US DOE Building America
Industrialized Housing Partnership
Manufacturing /Construction Productivity
2005

29. KKaaiizzeenn IImmppaaccttss
Customer Satisfaction
1. Customer satisfaction index
2. Annual customer survey
3. Referral rates
4. On time delivery
5. Defects found by builder at delivery
6. Defects found by homeowner at inspection
7. Warranty calls
8. Warranty costs
9. Response time on warranty calls
US DOE Building America
Industrialized Housing Partnership
Manufacturing /Construction Productivity
2005

30. KKaaiizzeenn IImmppaaccttss
Operational Performance
1. Defects found by online inspection
2. Defects found by finished product quality audits
3. Feedback from company set crew
4. Feedback from company final trim out
5. Service claims received and completed
6. Leads and leads closed
7. Company sales vs sales in region
8. Homes shipped complete
9. Labor efficiency
10.Line rework cost
11.Warranty costs
12.Costs of quality
13.Utility cost
14.Vendor rating
US DOE Building America
Industrialized Housing Partnership
Manufacturing /Construction Productivity
2005

31. Decline in WWoorrdd ooff MMoouutthh BBaasseedd oonn DDeecclliinnee iinn
CCuussttoommeerr SSaattiissffaaccttiioonn
90%
-70% -91% -97% -98% -100%
65%
30%
9%
3% 2% 0% 0% 0% 0%
10 9 8 7 6 5 4 3 2 1
% Definitely
will
Recommend
Company
-36%
Outstanding Average Unacceptable
Overall Satisfaction with Compnay
Source: J.D. Power and Associates 2005 New Home
Builder Customer Satisfaction Study

32. CCoommppaarriissoonn ooff LLooyyaallttyy RRaatteess aanndd CCuussttoommeerr
SSaattiissffaaccttiioonn LLeevveellss
MEAN NUMBER OF RECOMMENDATIONS
GIVEN BY OVERALL SATISFACTION
Recommendations
5.59 4.17
of Number Overall Satisfaction 7.58
30 Market Total
0.63 0.31 0.34 0.20
1.31
1.86
2.86
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
10 9 8 7 6 5 4 3 2 1
J.D. Power and Associates 2005 New Home
Builder Customer Satisfaction Study

33. As Overall Satisfaction SSccoorreess IInnccrreeaassee,
SSoo DDoo tthhee NNuummbbeerr ooff
PPoossiittiivvee RReeccoommmmeennddaattiioonnss ppeerr HHoommeebbuuyyeerr
A 10-point increase in a builder’s Index score can yield 0.66 extra recommendations per
At an Index score
of 122, the
average builder
could receive
4.62 positive
recommendations
per homebuyer.
The average
builder, at an
Index score of
112, receives
3.96 positive
recommendation
s per
homebuyer.
homebuyer.
3.96
4.62
JD Power, The Impact of Quality on Customer Satisfaction,
Maryland National Capital Building Industry Assoc, June 21st 2006

34. X 15%
Convert to
Sales
=
X $292,000 Average Sale Price
= $3,504,000 Revenue
5% Average Profit Margin $175,000
Additional profit from
X=
additional
recommendations
X
128
= 0.66 Additional
Recommendation
per Buyer
Average 84
Number of
Returned
Questionnaires
per Builder
Potential
Customers
12
Additional
Home Sales
JD Power, The Impact of Quality on Customer Satisfaction,
Maryland National Capital Building Industry Assoc
June 21st 2006

35. Analysis Step 2: Determine the Importance of Each of
the Drivers of Cu%%stom CCer ooSnnatittsrrfaiicbbtiuuonttiioonn ttoo OOvveerraallll
EExxppeerriieennccee WWiitthh NNeeww--HHoommee BBuuiillddeerr
JD Power, The Impact of Quality on Customer Satisfaction,
Maryland National Capital Building Industry Assoc
June 21st 2006

36. 36
The Percent of Home Buyers EExxppeerriieenncciinngg SSiiggnniiffiiccaanntt
CCoonnssttrruuccttiioonn PPrroobblleemmss IImmppaaccttss CCuussttoommeerr SSaattiissffaaccttiioonn
Washington,
D.C. Baltimore
Home Exterior 77% 68%
Landscaping 54% 40%
Sidewalk, driveway, foundation cracks 41% 34%
Lot and slope drainage 32% 27%
Exterior paint 27% 20%
Exterior walls 25% 19%
Other exterior 19% 16%
Roof leaks 11% 9%
Fencing 4% 2%
Kitchen 62% 56%
Plumbing problems 35% 30%
Cabinet quality and finish 32% 25%
Countertop problems 23% 23%
Other kitchen problems 18% 13%
Bathrooms 61% 55%
Toilet problems 30% 27%
Sink, tub and shower stall plumbing 30% 24%
Other sink, tub and shower stall 21% 17%
Other bathroom problems 15% 13%
Countertop problems 9% 10%
Windows/Doors 65% 59%
Internal door misfits 29% 27%
Window misfits or leaks 28% 26%
External door misfits or leaks 24% 23%
Other window or door 23% 15%
Garage door 17% 12%
Electrical/Appliances 63% 61%
Heating and air-conditioning 40% 42%
Electrical problems 27% 23%
Appliance problems 21% 20%
Lighting fixture problems 12% 11%
Other electrical/appliance 6% 6%
Washington,
D.C. Baltimore
Flooring/Stairs 73% 71%
Floor squeaks 37% 31%
Visible carpet seams 37% 29%
Hardwood floor problems 25% 29%
Carpet coming up at edges 22% 18%
Tile cracks, chips 19% 17%
Stairway squeaks 17% 15%
Other flooring/stair problems 16% 13%
Stairway handrail weakness 12% 9%
Linoleum dimples/buckles 5% 8%
Discolored tile or linoleum 4% 5%
Drywall 67% 70%
Nail pops/exposed nails 46% 46%
Wall/ceiling cracks 34% 37%
Visible joints/seams 29% 29%
Wall bulges/unevenness of surfaces 21% 20%
Crooked walls 19% 17%
Other drywall problems 14% 16%
Interior paint 35% 34%
Uneven paint coverage 18% 17%
Paint of poor quality 16% 17%
Paint scratches/chipping 13% 10%
Paint not washable 7% 8%
Other interior paint problems 7% 5%
Other significant problems 10% 10%
JD Power, The Impact of Quality on Customer Satisfaction,
Maryland National Capital Building Industry Assoc
June 21st 2006

37. Not Surprisingly, Problems per 100 Homes Increases Over
PPrroobblleemmss ppeerr 110000 HHoommeess IInnccrreeaasseess OOvveerr TTiimmee
Time in Home…
PROBLEMS PER 100 HOMES
JD Power, The Impact of Quality on Customer Satisfaction,
Maryland National Capital Building Industry Assoc
June 21st 2006

38. As DDooeess PPrroobblleemmss ppeerr 11,,000000 FFeeeett22..
PROBLEMS PER 1,000 FEET2
5.79
5.89
6.01
6.56
6.68
7.00
6.50
6.00
5.50
5.00
Less Than 6
Months
6 Months to
Less Than 9
Months
9 Months to
Less Than 12
Months
12 Months to
Less Than 15
Months
15 Months to
Less Than 18
Months
Length of Time in Home
Average Number of Problems Experienced
JD Power, The Impact of Quality on Customer Satisfaction,
Maryland National Capital Building Industry Assoc
June 21st 2006

39. Approximately Two-Thirds ooff CCoonnssttrruuccttiioonn PPrroobblleemmss aarree
FFiixxeedd oonn tthhee FFiirrsstt VViissiitt,, oonn aa PPaarr wwiitthh tthhee NNaattiioonnaall AAvveerraaggee
NUMBER OF VISITS NEEDED TO RESOLVE CONSTRUCTION PROBLEM
3+ Visits to Resolve
2 Visits to Resolve
1 Visit to Resolve
Base: Resolved Problems
15% 13%
23% 21%
62% 66%
Washington, D.C. Baltimore
JD Power, The Impact of Quality on Customer Satisfaction,
Maryland National Capital Building Industry Assoc
June 21st 2006

40. D Overall Satisfaction Deecclliinneess DDrraammaattiiccaallllyy WWhheenn
PPrroobblleemmss RReeqquuiirree MMoorree TThhaann OOnnee VViissiitt ttoo RReessoollvvee
Overall Satisfaction Index
OVERALL SATISFACTION INDEX VS. PROBLEM RESOLUTION
30 Market Total
Visits To Resolve Problem
JD Power, The Impact of Quality on Customer Satisfaction,
Maryland National Capital Building Industry Assoc
June 21st 2006

41. Each Occurrence of the Following PPrroobblleemmss WWiillll RReedduuccee
aann IInnddiivviidduuaall’’ss OOvveerraallll SSaattiissffaaccttiioonn SSccoorree,, bbyy......
HIGHEST IMPACT ON OVERALL SATISFACTION
Category Problem Impact Weight
Home Exterior Roof leaks -3.31
Drywall Crooked walls -3.06
Home Exterior Sidewalk/driveway/foundation cracks -3.05
Interior paint Interior paint of poor quality -2.86
Flooring/Stairs Linoleum dimples/buckles -2.73
Kitchen Cabinet quality and finish -2.27
Home Exterior Lot and slope drainage -2.19
Flooring/Stairs Visible carpet seams -2.18
Home Exterior Exterior walls -2.01
Flooring/Stairs Stairway handrail weakness -1.94
Flooring/Stairs Discolored tile or linoleum -1.91
Electrical/Appliance Electrical problems -1.87
Flooring/Stairs Other flooring problems -1.77
Windows/Doors External door misfits or leaks -1.72
Windows/Doors Window misfits or leaks -1.69
Home Exterior Landscaping -1.63
JD Power, The Impact of Quality on Customer Satisfaction,
Maryland National Capital Building Industry Assoc
June 21st 2006

42. CCOONNTTAACCTT IINNFFOORRMMAATTIIOONN
Denis Leonard
(406) 451-9124
DenisLeonard@BusinessExcellenceConsulting.net