The presentation provides a brief overview of the cost of poor quality, and information on the certification of ISO 9001.

1. THE COST OF POOR QUALITY

2. Quality is free.
It’s not a gift, but it’s free. What
costs money are the unquality
things - all the actions that
involve not doing jobs right the
first time.
Philip Crosby

3. ISO 9001 GLOBAL GROWTH 1993 -
2011
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Source: The ASQ Global State of Quality 2

4. ISO 9001 LISTED COMPANIES BRICS
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Source: The ASQ Global State of Quality 2
China India Brazil Russia South Africa
ISO Companies 328213 29574 28325 12663 3409
328,213
29,574 28,325
12,663
3,409
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000

5. ISO 9001 Companies PER SECTOR
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Source: The ASQ Global State of Quality 2
101,848
83,864
79,237
31,086
20,467
2,766 1,948 1,626 1,535 612 465
0
20,000
40,000
60,000
80,000
100,000
120,000
Basic metal &
fabricated metal
products
Construction Electrical and
optical equipment
Engineering
Services
Information
technology
Mining and
quarrying
Electricity supply Manufacture of
coke & refined
petroleum
products
Water supply Gas supply Nuclear fuel

6. ISO 9001 LISTED COMPANIES south
africa
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Source: The ASQ Global State of Quality 2
Basic
metal,
fabricated
metal
products
Electrical,
optical
equipment
Other
services
Chemicals,
products,
fibres
Transport,
storage,
communication
Rubber,
plastic
products
Machinery,
equipment
Engineering
services
Food
products,
beverages,
tobacco
Other
transport
equipment
Wholesale,
retail,
trade,
motor
vehicles
Concrete,
cement,
lime,
plaster
Construction
654
312
295 281
185 182
170 156
133 130 122
56 55
0
100
200
300
400
500
600
700

7. Quality Costing and Lessons Learned on Projects
Source: Oxford Economics
Worldwide, capital project
and infrastructure spending
is expected to total more
than $9 trillion by 2025, up
from $4 trillion in 2012
Economic return generated
for every dollar spent on a
capital project
7
Total Quality Costs may
constitute 8% - 15% of total
construction costs
3
Global infrastructure spending to reach $9 trillion by 2025
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8. CEO RESTRUCTURING
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Completed a domestic M&A
Sold majority interest in a
business or exited a
significant market
Outsourced a business
process or function
Insourced a previously
outsourced business process
or function
Implemented a cost-
reduction initiative
Entered into a new strategic
alliance or joint venture
Ended an existing strategic
alliance or joint venture
0% 20% 40% 60% 80%
Completed a cross-border M&A
Which of the following restructuring activities have CEOs initiated in the past 12
months?
Source: PWC Capital Projects and Infrastructure 2013 www.pwc.com

9. THE COST OF POOR
QUALITY

10. Global coq benchmarks
OF TOTAL CONSTRUCTION COSTS
TOTAL QUALITY COSTS
15%
OF TURNOVER OF MANUFACTURING COMPANIES
TOTAL QUALITY COSTS
20%
WITH THE IMPLEMENTATION OF A SOUND QMS
REDUCTION IN MANUFACTURING COST
25%
OF TOTAL PROJECT COSTS
REWORK
10%
MANUFACTURERS IN THE UNITED STATES THAT CALCULATE COQ
USA COMPANIES
30%
THAT IMPLEMENTED A COST REDUCTION INITIATIVE 2013
CEOs
78%
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11. QUALITY MATURITY AND
COQ
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Crosby QM
Model
Categories
Stage 1 :
Uncertainty
Stage 2 :
Stage 3 :
Enlightenment
Stage 4 :
Wisdom
Stage 5 :
Certainty
Cost of Quality
% of sales
Reported:
Actual: 20%
Reported: 3%
Actual: 18%
Reported: 8%
Actual: 12%
Reported: 6.5%
Actual: 8%
Reported: 2.5%
Actual: 2.5%
Quality
improvement
actions
No organized
activities. No
understanding of
such activities.
Trying obvious
‘motivational’
range efforts.
Implementation
multi-step
programs with
thorough
understanding
establishment of
each step.
Continuing the
multi-step
and starting
pro-
active/preventive
quality
Quality
improvement is
normal and
continued

12. POTENTIAL QUALITY COSTS
• Safety and environmental
implications due to non-compliance
with statutory quality requirements
• Non-conformance of products
• Replacement and rework cost
• Project delays due to non-compliance
with regulations and resultant rework
• Lack of QA & QC on a project/service/
product.
QUALITY COSTS:
• Opportunity costs of underutilization
of installed capacity, inadequate
material handling and poor service
delivery
• Cost of inefficient resource utilization
and poor quality design
• Cost of inefficient contract
management
• Lost customers
QUALITY COSTS:
• Loss and reduction in revenue owing
to non-conformance
• Hidden costs that are inadequately
recorded in company accounts and /
or failure costs that are never actually
discovered or recorded
• Loss of reputation
QUALITY COSTS:
• Lack of quality requirements in Client
enquiries on final contracts with
Suppliers
• Incompetent suppliers leading to delivery
of substandard products/services
• Project delays due to replacement of
suppliers
• Compensation claims
• Reduced plant availability, reliability and
life
QUALITY COSTS:
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13. Cost of quality models

14. Quality cost models
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Quality
Cost
Models
Non-
Conformance
Costing
Life-Cycle
Costing
Compensatio
n Event
Analysis
Incident
Costing
Process
Costing
Prevention,
Appraisal and
Failure Costing

15. Non-conformance costing
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R93,025
R838,818
R1441366
R75,768
R252,500
R522,000
R2,475,935
R 5,699,412
R 0
R 1,000,000
R 2,000,000
R 3,000,000
R 4,000,000
R 5,000,000
R 6,000,000
Apr13 May13 Jun13 Jul13
Client Loss
Contractor Loss
YTD Total Loss
Contractor Loss
R3 250 435 57% Client Loss
R 2 448 977 43%

16. COMPENSATION EVENT
ANALYSIS
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R 5 483 751
R 8 451 446
R 0.00
R 1,000,000.00
R 2,000,000.00
R 3,000,000.00
R 4,000,000.00
R 5,000,000.00
R 6,000,000.00
R 7,000,000.00
R 8,000,000.00
R 9,000,000.00
Code X1 D1
Code X2 D1
Code X2 D5
Code X3 D2
Code X3 D3
Code X3 D1
Code X3 D4
Code X3 D5
Code X3 D3Code X4 D1
Code X5 D1
Code X5 D4
Code X5 D5
Code X6 D1
Code X6 D3
Code X7 D1
Code X7 D5
Deviation Code
D1: Scope increase
D2: Scope reduction
D3: Rework
D4: Contract modification
D5: Pending info
Origin Code
X1: Geotechnical investigations
X2: Process control
X3: Design modification
X4: Process modelling
X5: Contract re-evaluation / mods
X6: Health and safety
X7: Environment

17. QUALITY COSTING THE PAF MODEL
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COST OF QUALITY SUMMARY REPORT BASED
ON OPERATING EXPENDTURE
TIME PERIOD: MARCH 2007 – JULY 2010
Total Prevention & Appraisal Cost as % TQC 48%
Total Failure Costs as % TQC 52%
Total Quality Costs as % Operating
Expenditure
27%
Total appraisal costs,
R 56.7 million - 18%
Total internal failure costs,
R 77.7 million – 24%
Total external failure costs,
R 88.8 million – 28%
QualityCosts(R)
Internal and
external failure
costs
Prevention and
appraisal costs
Total quality costs
0 100Quality of conformance (%)
Optimal Investment
Total prevention costs,
R 97.3 million - 30%

18. pareto principle (80/20)
18
Also known as the "80/20 Principle", this tool is often used to analyse quality costs. For example, 13 percent of work
could generate 87 percent of returns. Alternatively, 70 percent of problems could be resolved by dealing with 30
percent of the causes.
The Pareto curves provide guidelines to management w.r.t. prioritisation of corrective action activities.
Customer Complaints across 5 Categories (3rd Quarter: 2016) Detail of "Documentation" related Complaints
If all complaints cause equal distress to the customer, working on eliminating "Documentation" related complaints would have the
most impact, and of those, working on "Certificates of Conformance" (CofCs) should be the most fruitful.
from PRO001: "Quality Circles and Continual Improvement"