Digging In: Next Steps for Cost of Quality Research

5 minute read

Odds are that you’re already looking at several key business metrics with intent – and so are your counterparts at other building organizations. But when it comes to construction quality, most builders find it difficult to quantify—and even harder to understand exactly how it impacts your bottom line. No one has the complete picture. That’s what we intend to create with Cost of Quality research – a roadmap builders can use to quickly identify the areas that have the greatest potential to increase their profit.

During our March 18th webinar, “Digging into the Cost of Quality,” Glenn Cottrell, IBACOS’ Managing Director of Builder Solutions, kicked things off by sharing a case study of a National Housing Quality Award winning builder who achieved nearly $6 in savings for every $1 they invested in proactive quality management. Over a three-year period, they lowered their total quality spend by 36%, to less than 1% of sales per year. While their results were impressive, even a 3 to 1 or 2 to 1 return on investment would go a long way in helping increase margins.

If you look at it in terms of dollars per house, the same way you look at things like lighting or doorknobs, IBACOS estimates that builders can recover more than $10,000 in profit per house – or 2.5% in margin – based on a “benchmark” $400,000 house.

During the call, Glenn shared results from initial research into eight business metrics: warranty, jobsite waste, construction oversight, value engineering, cycle time, cost overruns, employee satisfaction and customer engagement. The numbers and the rationale behind them were the result of one-on-one conversations with several leading builders and experts from Advanced Energy, Avid Ratings, Builder Consulting Group, Business Excellence Consulting, Criterium Engineers, DuPont, Laing Associates, LegalEye, RESNET, Stockbridge Associates and TrueNorth Development.

A builder participating in the call noted, “It’s a great first step. Very comprehensive.” We agree that we’re off to a good start, but we’ve just scratched the surface. We want to add depth to the numbers, and we need your help.

With Alliance builders’ input, we’ll take Cost of Quality research to the next level.

Between now and the Annual Meeting (October), we intend to engage Alliance builders and capture real numbers for the eight metrics we’ve outlined – numbers that show the potential for builders of different sizes with products at different price points throughout the U.S. In addition to slicing and dicing the numbers and identifying true potential for saving cost and increasing margins, we’ll get builders’ direction on which business metrics to explore next.

Individual responses will be strictly confidential, and the results will allow us to lay out the first leg of the Cost of Quality roadmap.

In return, each participating builder will receive a snapshot report with the initial results of IBACOS’ research, the Alliance average opportunity, and their potential savings in each area. Those builders who have demonstrated excellence in a particular area will be invited to share their Cost of Quality stories as guest speakers at the Annual Meeting, October 14-15 in Austin, TX – receiving complimentary accommodations and registration to the event.

Next Steps

Here’s how we’ll kick off 2015 research.

  1. Builder Buy-in on a Straw Man (April) – Based on feedback following the webinar, we’ve added a step to the process. We realize that sharing data will take time on your part. We’re confident that the results will provide value to your business, but we want to make sure your upfront investment is time well spent. Before launching the study, IBACOS will provide a detailed scope of our research effort, including a draft of the survey and an outline of the steps we’ll take to ensure confidentiality, to a handful of builders who participated in the webinar. They’ll act as key stakeholders on the Alliance behalf, and we’ll use their input to refine the model and the questions.  
  2. Commitments to Participate (May) – IBACOS will then reach out to all Alliance builders with an executive summary of the research approach, inviting them to participate and to designate a central point of contact for the study.
  3. Cost of Quality Survey Completion (May – August) – As soon as a builder has “signed on,” their primary point of contact will receive a survey link and a unique passkey. That builder and their team members will then have a few months to contribute information to a single, secured electronic record.

We’ll start sharing results as early as August, with builders’ individual snapshot reports. Glenn will give a high-level overview of the results at the Annual Meeting, and after builders have shared their Cost of Quality stories, we’ll open the floor to discuss our game plan for moving this research forward and define the next set of metrics we’ll be looking at.

We’re excited about the Cost of Quality and the potential this research has to provide unique value to your business.

Interested in learning more?

Send an email to Betsy Scott to make sure your company stays in the loop, and let us know if you have a central point of contact in mind.

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