Cost of quality versus cost of non-quality in construction: the crucial balance

The research is a pioneering attempt to determine the optimal level of investment in quality by construction companies. The methodology is based on quantifying the four types of quality-related costs in residential construction, and relates them to each other by expressing them all as percentages of the relevant total construction revenues (revenues to the company due to construction, excluding land, etc.). The findings reaffirm, on the one hand, that investing in quality is a worthy strategy and that, in the situations examined, the ratio of the direct benefits to the investment (in terms of savings on internal and external failures) is at least 2:1. On the other hand, the findings also show that an excess of quality costs (prevention and appraisal) is wasteful. Above a certain level of investment, the extra benefits are marginal, and thus do not offset the extra costs. Statistically fitted graphs, based on actual quantitative data, support this hypothesis, and provide approximate boundaries of effective versus ineffective investments in quality. In this study, the optimal range lies between 2% and 4% of the company's revenue. Investing less than 2% in prevention and appraisal will definitely entail higher failure costs, whereas an investment of over 4% most probably will not pay itself back.