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Construction Management and Economics

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A process approach in measuring quality costs of

construction projects: model development
Raymond T. Aoieong , S. L. Tang & Syed M. Ahmed
Version of record first published: 21 Oct 2010.

To cite this article: Raymond T. Aoieong , S. L. Tang & Syed M. Ahmed (2002): A process approach in measuring
quality costs of construction projects: model development, Construction Management and Economics, 20:2, 179-192

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 Construction Management and Economics (2002) 20, 179–192

1111
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A process approach in measuring quality costs of
6
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construction projects: model development
8
9 RAYMOND T. AOIEONG 1 , S. L. TANG 2 * and SYED M. AHMED 3
1011 1Faculty of Science and Technology, University of Macau, Macau, PR China
1
2Civil
and Structural Engineering Department, The Hong Kong Polytechnic University, Hunghom,
2
3 Kowloon, Hong Kong, PR China
4 3Department of Construction Management, College of Engineering, Florida International University, USA
5
6 Received 18 June 2001; accepted 29 October 2001
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9
2011
1 One of the most effective tools for evaluating the success of a quality management programme is the measure-
2 ment of quality costs (prevention, appraisal and failure costs). The application of the concept of quality costs
3 originated in the manufacturing industry in the early 1950s. As increasing attention has been given to
4 improving the overall quality in the construction process since the early 1980s, the application of total quality
5 management (TQM) practices in the construction industry has gained much popularity. A systematic approach
6 is needed for measuring quality costs, especially in the construction industry, due to the great number and
7 complexity of activities involved in a typical project. This paper describes how a simple methodology can
be used to capture quality costs in construction projects. Pre-existing models for capturing construction
8
quality costs, by Davis, by Abdul-Rahman, by Low and Yeo and by others, recognize quality cost compo-
9 nents but do not address the causes or sources of unwanted deviations. This paper proposes an alternative
3011 approach, based on the process cost model and in conformance with BS6143 (1992), which is thought to
1 better facilitate the fundamental goal of TQM, i.e. continual process improvement. A number of profes-
2 sionals involved in construction quality management were interviewed and responded favourably to the prac-
3 ticality of the proposed framework in the construction context.
4
5 Keywords: TQM, construction, quality management, quality costs, process cost model
6
7
8
9
Introduction improved systems and procedures, improved motiva-
4011 tion, and increased customer satisfaction, but also to
1
In recent years, increasing attention has been given to lower costs and bottom line savings. Some construc-
2
improving the overall quality of construction works. tion industry companies have implemented TQM
3
Many organizations have undertaken initiatives to successfully, and reasons for these successful imple-
4 mentations were summarized by Kuprenas et al.
implement various quality management techniques.
5 (1996). In order to quantify the beneŽ ts of TQM,
Due to the success of total quality management
6
(TQM) practices in the manufacturing industry, its quality must be measurable. Although there are
7
application in the construction industry has received numerous tools for measuring quality, the ‘cost of
8
much attention. TQM may be presented in various quality’ (or quality costs) is considered by both Crosby
9 (1984) and Juran (1988) to be the primary one.
theoretical forms, but its fundamental goals are
5011 Oberlender (1993) summarized quality costs as
customer satisfaction and continual improvement.
1
According to Dale and Plunkett (1991), TQM not only follows. ‘Quality costs consist of the cost of preven-
2
leads to improved productivity, higher standards, tion, the cost of appraisal, and the cost of failure.
3
Prevention costs are those resulting from quality
4 activities used to avoid deviations or errors, while
*Author for correspondence. e-mail: cesltang@polyu.edu.hk
5511
Construction Management and Economics
ISSN 0144–6193 print/ISSN 1466-433X online © 2002 Taylor & Francis Ltd
http://www.tandf.co.uk/journals
DOI: 10.1080/01446190110109157
 180 Aoieong et al.

1111 appraisal costs consist of costs incurred from quality Dale and Plunkett (1991) reported that, despite the
2 activities used to determine whether a product, process great quantity of literature discussing quality cost, there
3 or service conforms to established requirements. was no uniform view of what quality cost means and
4 Failure costs are those resulting from not meeting the how it can be measured. Researchers have proposed
5 requirements, and can be divided into two aspects. various approaches for measuring and classifying
6 Internal failure costs are the costs incurred on the quality costs, and reviews of the quality costs litera-
7 project site due to scrap, rework, failure analysis, re- ture can be found in Plunkett and Dale (1987) and
8 inspection, supplier error, or price reduction due to Porter and Rayner (1992). A brief summary of the
9 non-conformance. External failure costs are costs that most widely recognized approach, the prevention-
1011 are incurred once the project is in the hands of appraisal-failure (PAF) model, is as follows.
1 the client. These include costs for adjustments
l Prevention costs. The cost of any action taken
2 of complaints, repairs, handling and replacement of
to investigate, prevent or reduce the risk of
3 rejected material, workmanship, correction of errors,
nonconformity or defects.
4 and litigation costs.’
l Appraisal costs. The cost of evaluating the
5 Through the measurement of quality costs, manage-
achievement of quality requirements.
6 ment can be alerted to the potential impact of poor
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l Failure costs. The costs of nonconformity both

7 quality on the Ž nancial performance of the company.
internally (discovered before delivery to the
8 Moreover, management can also determine the types
customer, including scrap, rework, re-inspection
9 of activities that are more beneŽ cial in reducing quality
and redesigning) and externally (discovered
2011 costs.
1 In construction, many organizations have imple- after delivery to the customer, including
2 mented quality assurance programmes, such as ISO warranty costs and service calls).
3 9000 and TQM, just as a means of staying in busi- Although the PAF model is universally accepted for
4 ness. In a recent survey (Ahmed and Aoieong, 1998), quality costing, Porter and Rayner (1992) described
5 a questionnaire was sent to 150 project managers/ some of the drawbacks of this approach as follows.
6 quality managers of contractors in the construction
7 industry in Hong Kong. Among the 30 respondents, l It is difŽ cult to decide which activities stand for
8 approximately 90% wrote down ‘fulŽ lling clients’/ prevention of quality failures since almost every-
9 authorities’ requirements’ as their reasons for imple- thing a well-managed company does has some-
3011 menting ISO 9000 while only 46% said ‘improve thing to do with preventing quality problems.
1 proŽ tability’. In order to improve quality and proŽ t, l It is sometimes difŽ cult to uniquely classify costs
2 designers, consultants, contractors and also subcon- into prevention, appraisal, internal failure, or
3 tractors must do more than merely provide a minimum external failure costs (example will be given
4 level of assurance to their clients. They must aim at later).
5 reducing cost without sacriŽ cing quality. l The PAF model does not include intangible
6 In the USA, the Construction Industry Institute quality costs, e.g. loss of reputation.
7 (CII, 1989) conducted research to identify and quan- l The key focus of TQM is on process improve-
8 tify the rework costs of correcting quality deviations in ment, while the PAF categorization scheme does
9 nine construction projects. It was found that the devi- not consider process costs.
4011 ation costs averaged 12.4% of the total project cost. The objective of this paper is to investigate whether or
1 With this high percentage of deviation costs, a slight not the PAF model is suitable for capturing quality
2 reduction may result in signiŽ cant savings. In order to costs in the construction industry and, if not, what
3 do this, quality costs must be identiŽ ed and assessed. kind of a model will be more suitable.
4 Clearly this points to the importance of knowing how
5 and where quality costs have been incurred, so that
6 remedial actions may be taken to prevent their recur- Construction quality cost approaches by
7 rence, thereby reducing the costs of construction and previous researchers
8 beneŽ ting contractors, clients and end-users. The
9 result of the survey quoted above also showed that Quality costs in the construction industry as a whole
5011 close to 60% of the respondents said that they had not are relatively high in terms of total project costs.
1 attempted to measure defects-related costs. Those who However, due to the complexity of construction
2 did measure noted that the cost of correcting defects processes, measuring quality costs is often difŽ cult. An
3 was approximately 5% of the total construction costs. extensive literature review shows that, so far, only a
4 Similar results (about 5–6%) were also reported by few papers (Davis, 1987; Abdul-Rahman, 1995; Low
5511 Abdul-Rahman (1995). and Yeo, 1998; Barber et al., 2000; Love and Li, 2000)
 Measurement of quality costs of construction projects 181

1111 have been written in the context of construction on plus sources of deviations such as labour, equipment
2 how quality costs could be determined. The following and contract. However, the speciŽ c source of devia-
3 is a brief discussion of their approaches. tions was not recorded by the QPTS.
4
5
Davis’ approach Abdul-Rahman’s approach
6
7 In 1987, the CII (1989) Quality Management Task Abdul-Rahman (1993) developed a quality cost
8 Force developed a Quality Performance Management matrix to capture the cost of nonconformance during
9 System (QPMS) to track quality costs. It is a manage- construction. The matrix lists such information as
1011 ment tool providing for the quantitative analysis of ‘problem category’, ‘speciŽ c problem’, ‘when problem
1 certain quality-related aspects of design and construc- was discovered’, ‘causes of problem’, ‘extra duration
2 tion by systematically collecting and classifying the needed to correct problem’, ‘additional cost of activity’,
3 costs of quality. The cost of quality is deŽ ned as the ‘amount of additional time-related cost’, and ‘any addi-
4 cost of correcting deviations (rework) plus the cost of tional cost’. Two construction projects were used to
5 quality management activities. The QPMS is based on test the model, and the total costs of nonconformance
6 the assumption that quality costs can be adequately incurred were 5% (1995) and 6% (1996) of the tender
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7 tracked using 11 rework causes and 15 quality manage- value. In Abdul-Rahman’s cost matrix, the focus was
8 ment activities. The rework causes, when coupled with on capturing the cost of nonconformance, and no
9 four phases of a project, give a total of 40 (instead of attempts were made to quantify other classiŽ cations of
2011 11 ´ 4 = 44) deviation categories with some illogical quality cost, including prevention and appraisal costs.
1 combinations eliminated. Fifteen quality management In problem categorization, the items used were rather
2 activities covering the main activities involved in design broad. In order to capture the cumulative effect of
3 and construction were used to track quality manage- problems in a speciŽ c area, effective cost coding,
4 ment costs. Nine industrial projects were tested, similar to that used by Davis, should be employed.
5 yielding an average cost of rework of 12.4% of the Moreover, Abdul-Rahman did not consider the origin
6 project cost. of deviations as Davis did. In the present authors’ view,
7 Although the QPMS is simple and  exible, Abdul- in order to have a better understanding of quality costs
8 Rahman (1995) stated that QPMS does not consider data, the question ‘who caused the deviation?’ should
9 the effect of failure on time-related cost and knock-on be essential.
3011 cost, i.e. the cost to speed up work to make up for
1 lost time. Moreover, the procedure does not show the
Low and Yeo’s approach
2 speciŽ c source of problems, but rather Ž ve major
3 causes of origin, i.e. the owner, designer, vendor, trans- In view of the shortcomings of Davis’ and Abdul-
4 porter, and constructor, were stressed (see Table 1). Rahman’s approaches, Low and Yeo (1998) proposed
5 Similar to the QPMS, Davis’ (1987) quality perfor- a construction quality cost quantifying system
6 mance tracking system (QPTS) is an updated version (CQCQS). The cost system is basically a documenta-
7 of QPMS. In the QPTS, extensive costs coding to clas- tion matrix that accounts for quality costs expressed
8 sify the various items were used so that costs data as prevention, appraisal and failure costs. The head-
9 captured will be compatible with the works breakdown ings of the matrix are ‘cost code’, ‘work concerned’,
4011 structure (WBS) of a project. Attempts were made to ‘causes’, ‘problem areas’, ‘time expended’, ‘cost
1 trace the sources of deviations by the use of source incurred’ and ‘site record reference’. The main feature
2 codes. Source codes were assigned to the accepted of this model is the use of coding to classify the various
3 disciplines (civil, structural, electrical, and mechanical) items under the heading ‘work concerned’. The items
4
5
Table 1 Summary of three models designed to capture quality costs
6
7 Measurement Measurement Origin of SpeciŽ c Use of Effect of Field
8 of prevention of failure deviationa source of coding failure tests
9 and appraisal cost deviationb system
5011 costs
1 Davis 3 3 3 7 3 7 3
2 Abdul-Rahman 7 3 7 3 7 3 3
3 Low & Yeo 7 3 7 3 3 7 7
4 a
Origin of deviation: owner, designer, vendor, transporter, constructor.
5511 b
SpeciŽ c source of deviation: formwork, reinforcement, concrete, etc.
 182 Aoieong et al.

1111 that constitute ‘work concerned’ can be obtained from 3. Extensive coding was used in Davis’ model to
2 the works breakdown structure (WBS) of a typical capture quality management costs and deviation
3 project. Under the heading ‘cost code’, various compo- costs. However, when compared with Low and
4 nents of quality costs, such as prevention, appraisal Yeo’s model, the latter is easier to implement
5 and failure costs, can be classiŽ ed. However, similar and less costly.
6 to Abdul-Rahman’s approach, the matrix was designed 4. Only Abdul-Rahman considered the effect of
7 to capture the cost of failure primarily, and little effort failure on time-related cost and knock-on cost.
8 was made to quantify the prevention and appraisal The heading ‘any other additional cost’ was
9 costs. Moreover, Low and Yeo also did not consider used in his cost matrix to capture any other
1011 the origins of deviations. remedial costs incurred indirectly due to the
1 failure of an activity. It is essential to include
2 the above as part of the cost of failure because
Other approaches
3 this cost could be substantial. Without measure-
4 Barber et al. (2000) developed a method to measure ment, the full impact of the failures on the
5 costs of quality failures in two major road projects. The project costs cannot be determined.
6 method was based largely upon work-shadowing. 5. Due to the short time frame involved, Low and
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7 Personnel on-site were shadowed for a period of time Yeo’s model was not tested.
8 and the quality problems encountered were recorded. 6. The speciŽ c sources of deviations were not
9 Only direct costs of rework for the failures and the considered in Davis’ approach. It is essential to
2011 related costs of delay were included in their study. Of pinpoint the speciŽ c source of deviations so that
1 the weekly budgeted cost of the speciŽ c areas of work preventive measures can be employed and
2 studied, failure costs amounted to about 16% and 23% improvements can be made.
3 of the weekly budget, respectively.
The three models’ similarities and differences are
4 Love and Li (2000) quantiŽ ed the causes, magni-
summarized in Table 1.
5 tude and costs of rework experienced in two construc-
6 tion projects. Data were collected from the date on
7 which construction commenced on-site to the end of
A proposed PAF quality cost model
8 the defects liability period. A variety of sources such
9 as interviews, observations, and site documents were
In principle, applying the quality cost concept to the
3011 used to collect the rework data, and only the direct
construction industry is straightforward. However, in
1 costs of rework were included. The costs of extra work,
practice, it is rather complex. A recent survey carried out
2 including variations and defects, were found to be
in Hong Kong (Ahmed and Aoieong, 1998) indicates
3 3.15% and 2.40% for the two projects. It was also
that close to 60% of the respondents do not measure
4 concluded that the primary causes of rework were
costs related to defects. The main reason for that could
5 changes initiated by the client and end-user, together
be just a lack of interest in knowing the quality costs.
6 with errors and omissions in contract documents.
Moreover, it is rather difŽ cult to measure quality costs
7
without the implementation of an effective quality cost
8
Summary of the three major approaches tracking system. Last but not the least, all personnel,
9
from top management to site staff, should be aware of
4011 1. Measurement of failure cost was the focus of all
the usefulness of quality cost data to the company. The
1 the Ž rst three models. However, only Abdul-
top management should also do their best to remove any
2 Rahman’s and Low and Yeo’s models pin-
negative views on the system. Some of the main features
3 pointed the causes of problems. While Abdul-
of an ‘ideal’ quality tracking system are as follows.
4 Rahman used wording to describe the problem
5 area, Low and Yeo found using codes to be 1. The quality tracking system should be able to
6 more convenient. capture all components of quality costs. With
7 2. Measurement of prevention and appraisal costs one or more components missing, the effect of
8 is important due to the fact that they could be varying one component on the others cannot be
9 a signiŽ cant part of the total quality costs. visualized. Within each component of quality
5011 Without quantiŽ cation, the relationship between costs, standardization of category is necessary,
1 prevention cost, appraisal cost, and failure cost so that meaningful data can be compared
2 cannot be fully understood. However, the deŽ - between projects. On the other hand, the cate-
3 nition of what constitute quality management gorization should be  exible enough to ensure
4 activities is somewhat arbitrary, and therefore that the system can be modiŽ ed when necessary
5511 exact deŽ nition of each activity is necessary. to suit different types of projects.
 Measurement of quality costs of construction projects 183

1111 2. The use of a coding system in tracking quality Appraisal activities: activities used to determine whether
2 costs is essential. As suggested by Low and Yeo a product or process conforms to established require-
3 (1998), the coding system should be compatible ments
4 with the local quality assessment systems, if any.
l Materials inspections/tests
5 3. The ease of use of the quality cost tracking
l Inspection
6 system is essential. The system must be straight-
l Maintenance of testing/measuring equipment
7 forward, because the people who would be
8 collecting cost data are the personnel on site. Causes of deviations: the reasons for any deviations (a
9 Any extra workload created from the system departure from established requirements to occur)
1011 must be kept to a minimum. Due to the highly
l Communications errors
1 competitive environment in the construction
l Defective materials
2 industry, it is impractical to implement any extra
system that would result in much extra work- l Design errors or omissions
3
load to site staff. l Poor workmanship
4
4. The practicality of the quality cost tracking sys- l Faulty equipment
5
6 tem is essential. The main barrier to trying out Origin of deviations:
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7 the system is the long construction time involved.

Recent interviews with some project managers l Davis’ (1987) QPTS had identiŽ ed Ž ve origins:
8
also indicated other barriers as listed below. owner, designer, vendor, transportation and
9
Most companies considered quality cost data constructor
2011 l
1 as conŽ dential, and therefore were very SpeciŽ c source of deviations:
2 reluctant to release any data. The top man-
agement must be convinced that collecting l SpeciŽ c area where problems occur, for exam-
3
quality costs is beneŽ cial to the company. ple, formwork, reinforcement, concrete, etc.
4
5 l Lack of resources is another barrier.
6 Depending on the complexity of the system, Development of the coding system
7 extra personnel would be involved in
implementing the system, and that will In order to record and trace quality costs effectively,
8
result in extra cost to the company. every item under each component of quality costs, the
9
origin of deviations, and the source of deviations
3011
should be codiŽ ed. The procedures can be summa-
1 Improvement made based on the existing models rized as follows.
2
3 In PAF models, the three components of the quality l Conduct an investigation of the general prac-
4 costs in the building contractor’s perspective are tices in the construction industry with regard to
5 prevention cost, appraisal cost, and deviation (failure) the use of a coding system.
6 cost. In order to obtain a general view from the l Investigate the accounting procedures of
7 industry on the categorization of quality costs, exten- contractors and attempt to integrate the coding
8 sive in-depth interviews with contractors and local system with the accounting cost coding system.
9 authorities should be conducted as a Ž rst step in devel- l Typical task codes can be generated from the
4011 oping the model. A list of quality management activi- work breakdown structure (WBS) of a typical
1 ties used in construction projects and a list of common project, using the standardized divisional break-
2 deviations that occurred on these construction sites can down (Masterformat) developed by the
3 then be established. Other than costs incurred from Construction SpeciŽ cation Institute (CSI). A
4 the quality-related activities and deviations, the origin master list of section titles and numbers can be
5 of deviations is also a concern, as a deviation by any found in the appendix of Oberlender’s (1993)
6 of the participants may cause quality costs for that book. Major ‘divisions’ include sitework,
7 particular participant or for others. Typical quality concrete, metals, wood and plastics, doors and
8 management activities, cause and source of deviations windows, conveying systems, mechanical and
9 are shown below. electrical, etc. An example of the master list is
5011 Prevention activities: activities used to avoid devia- shown in Figure 1.
1 tions or errors l The management activity code, task code and
2 l Quality system development cause code can then be generated after the devel-
3 l Quality program development opment of the categorization of quality costs as
4 l Personnel training discussed above. The origins of deviations can
5511 l SpeciŽ cations/Design review also be traced by using a proper coding system.
 184 Aoieong et al.

1111
2
3
4
5
6
7
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1
2
3
4
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7
8
Figure 1 Typical master list developed by the Construction
9 SpeciŽ cation Institute for division 3, concrete
2011
Figure 2 Sample of prevention and appraisal costs record
1
sheet
2
Development of the quality cost model:
3
4 With the categorization of quality costs developed and
5 the coding system in place, the next phase is the devel-
6 opment of a quality cost system to capture all the
7 quality-related costs. In the development of the system,
8 the users who would be operating the system must Ž rst
9 be identiŽ ed. Most likely, the person who would be
3011 analysing quality costs data will be the quality manager
1 of the project. A user-friendly computer program
2 developed to track quality costs will deŽ nitely make
3 the system easier to implement. In the development of
4 the computer program,  exibility is essential to ensure
Figure 3 Sample of failure cost record sheet for division 3
5 that the system can be modiŽ ed when necessary to suit
6 different types of project. On the other hand, the
7 people who would be recording quality costs data will
8 be the site staff. Considering their heavy workload,
9 attention must be given to the design of the site quality
4011 cost record sheets so that staff resistance can be
1 reduced to a minimum. Typical site record sheets for
2 recording prevention and appraisal costs and failure
3 costs are shown in Figures 2–4.
4 In recording the failure cost, record sheets can be
5 grouped together according to divisions (or subdivi-
6 sions) as shown in Figures 3 and 4. At the end of a pro-
7 ject, with quality costs data collected from all sources,
8 reports relating task, prevention, appraisal and failure
9 costs can be generated readily from the program, as
5011 shown in Figure 5. Depending on the information
1 required by the end-user, quality cost reports can be pre-
2 sented in different formats. By grouping entries accord-
3 ing to task code (division) as shown in Figure 6, the
4 prevention, appraisal and failure costs of each divi-
5511 sion can be identiŽ ed. Similarly, by grouping entries Figure 4 Sample of failure cost record sheet for division 5
 Measurement of quality costs of construction projects 185

1111
2
3
4
5
6
7
8
9
1011
1
2
3
Figure 7 Sample of quality cost report sheet (sorted by
4
prevention/appraisal/failure)
5
6
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7
Figure 5 Flow of information
8
9
2011
1
2
3
4
5
6
7
Figure 8 Sample of quality cost report sheet (sorted by
8
origins)
9
3011
1
The objectives of the training would be to educate the
2
staff on the importance of quality costs and to prepare
3
those who would be collecting the quality cost data.
4 Figure 6 Sample of quality cost report sheet (sorted by
5 tasks)
6 Data analysis
7
Typical analysis of the data can include the following.
8 according to activity code or cause code, as shown in
9 Figure 7, the prevention/appraisal cost of any particu- l The average quality costs of building projects
4011 lar quality management activity and the failure cost of expressed as a percentage of the total project
1 a particular cause can be determined. Similarly, by cost.
2 grouping entries according to origin code, as shown in l The distribution of quality costs according to
3 Figure 8, the distribution of failure costs among the par- the PAF categories.
4 ties involved in the project can be determined. l The distribution of quality costs according to
5 the origins (parties involved) in the project.
6 l The analysis of the interrelationship among
Implementation of the model on a pilot project
7 prevention, appraisal and deviation costs.
8 After the development of the model, pilot projects
9 should be conducted. A particular operation, concrete
Summary
5011 for example, of a building project should be selected
1 Ž rst as a pilot study. Once the initial trial of the costs A PAF cost model to capture the cost of quality for
2 system is completed and if the result is satisfactory, construction projects has been presented. In order to
3 projects involving full implementation of the model can solicit the general view of the construction industry
4 then be conducted. Before the implementation of the regarding the practicality of the model, extensive inter-
5511 model, training of the personnel involved is required. views with personnel in the industry were conducted.
 186 Aoieong et al.

1111 Feedback from the industry about the No such system has been established in any one
2 proposed PAF model of the companies interviewed. The reason for
3 not establishing such a system is the lack of
4 In-depth interviews with leading construction contrac- resources. One interviewee commented: ‘The
5 tors in Hong Kong were conducted. The details of the design of such a system is not too difŽ cult.
6 PAF approach described above were presented to the However, it is nearly impossible to implement
7 interviewees. Comments regarding the implementation such a system on a construction project site.’
8 of such a quality cost tracking system based on the b) No resources available for the measurement
9 PAF approach were obtained and are summarized in Whether or not a company has extra resources
1011 the following paragraphs. to implement a quality cost measurement
1 system depends very much on its proŽ t margin.
2 Interviews All interviewees shared the view that measure-
3 ment of quality costs is beneŽ cial. However, due
4 The purpose of the interviews was to obtain views from to the highly competitive nature of the construc-
5 personnel involved in quality assurance on issues tion industry, most contractors have to cut their
6 relating to quality cost in the construction industry. proŽ t margin to a minimum in order to tender
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7 Twelve contractors were selected from the Hong a bid successfully. It is for this reason that
8 Kong Housing Authority list of building contractors. most contractors are reluctant to spend more
9 They represented 38% of all the contractors who were to improve their quality system. One quality
2011 eligible to tender for contracts valued at above manager commented: ‘If we commit more on
1 HK$300M (HK$7.80 = US$1.00). Nine interviewees quality, more than the minimum required level,
2 were quality managers while the remaining three held our construction cost will be higher than our
3 senior managerial positions. competitors and therefore the project will most
4 likely be awarded to others.’
5 Discussion on results of interviews c) Multi-level contracting hinders the measure-
6 ment of the total quality costs
Awareness of quality cost in the construction industry
7 Subletting works by the main contractor to
8 All contractors interviewed have obtained ISO 9000 subcontractors is a very common practice in
9 certiŽ cation. Although all expressed that they were Hong Kong. Over 90% of the labourers on a
3011 aware of the concept of quality cost, there was no building site belong to subcontractors (Tang
1 uniform view about what quality costs are or about et al., 1998). It is also very common to have a
2 what should be included under the quality costs few levels of contracting between the general
3 umbrella. When the interviewees were asked if they contractor and the labourers. In order to
4 knew what is meant by quality costing, the majority measure the quality costs of a particular trade,
5 thought that it was just a process to measure the cost it would require the full co-operation of all levels
6 of nonconformance. The reason for this incomplete of subcontractors. Bearing in mind that the
7 view of quality costing could be traced to the nature subcontractors are under no obligation to do
8 of their jobs. Most of the interviewees are quality additional work to collect quality cost data, it
9 managers, so probably their main concerns are costs would be rather difŽ cult to get their co-opera-
4011 related to nonconformance. tion, even though there is a strong commitment
1 As far as the classiŽ cation of quality cost is con- from the general contractor. In order to capture
2 cerned, the majority were aware of the quality cost the total quality costs of a project, all subcon-
3 terms of prevention, appraisal, and failure. However, tractors from different trades have to be
4 after understanding the correct deŽ nition of those involved.
5 terms, most of the interviewees expressed that, in order From the general contractor’s point of view,
6 to avoid confusion, standardized classiŽ cation of qual- most contractors interviewed indicated that they
7 ity cost for the construction industry was essential. were not enthusiastic about obtaining facts on
8 Quality cost measurement quality costs. This is simply because most of
9 the projects are contracted out, and only the
5011 All interviewees said that they did not measure quality Ž nal ‘product’ and not the ‘process’ is their
1 costs according to the PAF classiŽ cation. Their reasons concern. From the subcontractors’ point of
2 for not measuring could be summarized as follows. view, instead of committing extra resources to
3 a) No system set up for the measurement collect data (which hinders the effectiveness in
4 In order to capture the quality costs of a project processing the works), they would much rather
5511 effectively, a quantitative system is essential. allocate their resources to rectifying problems.
 Measurement of quality costs of construction projects 187

1111 Moreover, there is a negative side to the system As one quality manager expressed in an interview: ‘One
2 because contractors/subcontractors will have to will never get the whole picture of quality costs for a
3 admit and report their mistakes during the building project because there are so many parties
4 implementation of the system, which they would involved’. Although this comment may be right, one
5 rather not do. can always focus on some areas of construction and
6 determine the quality costs of the work done by a
7 BeneŽ ts of measuring quality cost particular subcontractor. As another quality manager
8 In spite of the negative feedback, all interviewees pointed out in an interview: ‘In order to easily attempt
9 shared the view that there were merits in measuring a trial on this quality cost exercise, we suggest simpli-
1011 quality costs. Some beneŽ ts are listed as follows. fying the experimental model of building construction
1 project in the areas where often quality nonconfor-
l Measuring quality costs helps in identifying
2 mance is found’. In other words, if there are not
problem areas.
3 enough resources to implement the system on a full
l Measuring quality costs helps in reducing the
4 scale, a smaller scale implementation of the system can
cost of nonconformance.
5 still be achieved. In fact, this is totally in line with the
l Results from quality cost analysis can be used in
6 process cost model approach described in British
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the contractor/subcontractor selection process.

7 Standard 6143 Part 1 (BSI, 1992).
l Quality cost measurement is an effective tool for
8 In the past, the concept of quality costing has
the implementation of TQM.
9 implied that certain identiŽ able costs are in some way
2011 Personnel responsible for measuring quality cost related to the ‘quality’ of the end product. By contrast,
1 within today’s TQM culture all activities are related to
Most interviewees said that quantity surveyors and site
2 processes, and therefore a cost model should re ect
engineers would be in the best position to record
3 the total cost of each process.
quality costs on site. They are the persons on site who
4 The deŽ nitions in BS 6143 Part 1 (1992) are as
are responsible for the assessment and inspection of
5 follows.
work done.
6
Process cost
7
The total costs of cost of conformance (COC)
8 Interview results
and cost of nonconformance (CONC) for a
9
In addition to the above comments, all interviewees particular process
3011
indicated that such a proposed model would be too Cost of conformance (COC)
1
complicated to use in practice and straight implemen- The intrinsic cost of providing products or
2
tation of the PAF model might not be possible. It was services to declared standards by a given, spec-
3
probably due to the complexity of the structure of the iŽ ed process in a fully effective manner
4
construction industry. The interviewees also suggested Cost of nonconformance (CONC)
5
that, if feasible, a more practical model for measuring The cost of wasted time, materials and resources
6
quality costs should be developed for the beneŽ ts of associated with a process in the receipt, produc-
7
the construction industry. tion, dispatch and correction of unsatisfactory
8
goods and services
9
4011 In the traditional prevention, appraisal and failure
1 An alternative approach to the traditional approach, many costs can be attributed to either
2 PAF model for the construction industry prevention or appraisal. Design reviews, for example,
3 may be considered to be a prevention cost; however,
4 Unlike a production line in the manufacturing industry, essentially they are a checking stage and, as such, could
5 the construction process is far more complicated. Due be considered an appraisal cost. Moreover, it is always
6 to the vast number of parties involved and the unique- difŽ cult to decide which activities should be catego-
7 ness of each activity in a construction project, straight rized as prevention cost because it can be argued that
8 application of the concept of quality cost based on a everything a well managed organization does is directed
9 manufacturing setting is rather difŽ cult. However, if at preventing quality problems. This is one of the draw-
5011 the measurement of quality cost is beneŽ cial to the backs of the PAF approach. A new approach, the
1 construction industry, attempts should be made to process cost approach, presents a much simpler cate-
2 design a measuring system applicable to and accept- gorization than the PAF scheme. In the context of
3 able by the industry. building construction, process cost models can be
4 Among the prevention, appraisal and failure costs, developed for any selected construction processes. The
5511 failure cost is the most difŽ cult to identify and collect. COC and/or CONC can then be measured and key
 188 Aoieong et al.

1111 areas for process improvement identiŽ ed. Since usually

2 both COC and CONC can be improved, the whole
3 process is in tune with the fundamental goal of
4 TQM, i.e. continual improvement. Since the TQM
5 philosophy focuses on process improvement, the PAF
6 approach has its limitations, because process costs are
7 not considered in the cost categorization scheme.
8
9
The process cost model for building
1011
construction processes
1
2 IdentiŽ cation of process
3 TQM requires the management of processes, not
4 just of outputs. In order to improve the quality and
5 productivity of a process, top management must Ž rst
6 identify speciŽ c processes with discrete activities that
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7 require improvement. Continual improvement of

8 processes should be established as an organization’s
9 objective. Through systematic management review,
2011 top management can evaluate the effectiveness of
1 processes, and actions can be taken accordingly. For
2 example, in building construction, the process of
3 concreting can be isolated and selected for process
4 improvement.
5
6 DeŽ ning the process and its boundaries
7 Once a particular process is isolated, its boundaries
8 must be properly deŽ ned so that all key activities will
9 be included for investigation. An organization’s
3011 resource availability must be considered when deter- Figure 9 Flowchart for the process of concreting
1 mining the process boundaries, so that no excessive
2 resources will be demanded. For example, the process
3 of concreting is bounded by the activities ‘formwork
4 construction’ and ‘formwork striking.
5
6 Flowcharting the process
7
The  owchart will facilitate the identiŽ cation of all the
8
key activities and process owners within the process
9 boundaries. Based on the activities identiŽ ed, appro-
4011 priate inputs, outputs, controls and resources for each
1
activity can be identiŽ ed in the next step. A typical
2
 owchart for the process of concreting is shown in
3
Figure 9.
4
5 IdentiŽ cation of inputs, outputs, controls and resources Figure 10 Typical process model of construction processes
6
In the context of building construction processes,
7
the elements of the process (see Figure 10) could be
8 Outputs
expressed as follows.
9 The end products of the construction process
5011 Inputs (right hand side of Figure 10), which include
1 Construction materials, such as concrete, 1. that which conforms to the requirement; e.g.
2 admixtures, reinforcement, steel, waterstops, structural members, HVAC system
3 etc., that are transformed by the construction 2. that which does not conform to the require-
4 process to create building elements/system ment; e.g. defects
5511 (shown at the left hand side of Figure 10) 3. waste; e.g. material waste
 Measurement of quality costs of construction projects 189

1111 4. construction process information; e.g.

2 inspection reports;
3 Controls
4 Inputs that deŽ ne, regulate and/or in uence the
5 construction process. Examples of controls
6 embrace construction procedures, method state-
7 ments, work plan, drawings, standards and
8 speciŽ cation (shown at the top of Figure 10)
9 Resources:
1011 Contributing factors that are not transformed
1 to become an output. Examples of resources
2 include labour, equipment and overheads
3 (shown at the bottom of Figure 10)
4
A typical process model developed based on the
5
above concept for the process of concreting is shown
6
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in Figure 11.
7
8 IdentiŽ cation of the process cost elements and
9 calculation of the quality costs Figure 11 Process model for concreting
2011
Each process contains a number of key activities. Once
1
the process model is prepared, all the cost elements
2
associated with the key activities of the process in the
3
 owchart can be identiŽ ed and established as a cost concreting, and will be used as a reference in preparing
4
of conformance (COC) and/or a cost of nonconfor- the ‘process cost report’.
5
mance (CONC). In particular, the nonconformance
6 Constructing a ‘process cost report’
activities can be readily identiŽ able as rework loops in
7
the  ow of activities. Both types of cost offer oppor- A typical process cost report is shown in Figure 12.
8
tunities for improvement. The quality costs of the The report should contain a complete list of the costs
9
process is the sum of COC and CONC. The process of conformance and nonconformance elements. Items
3011
owners from whom data are obtained should also be in Table 2 can be extracted directly for use in Figure
1
identiŽ ed. In listing the activities, the contractor’s 12 when they are applicable. The report should also
2
coding system can also be employed, so that data can specify whether actual or estimated costs are used. In
3
be retrieved directly from the accounting system. Table addition, the process owner who is responsible for a
4
2 is a typical presentation containing the key activities, particular key activity can also be included in the
5
code numbers, COC and CONC of the process of report.
6
7
8
9 Table 2 IdentiŽ cation of costs for key activities: concreting
4011 Key activities Code Cost of conformance Cost of nonconformance
1
Formwork 3110 Cost of materials and labour Cost of waste materials
2
Cost of temporary shoring Cost of rework due to wrong dimensions
3
4 Reinforcement 3210 Cost of materials and labour Cost of rework due to incorrect size of reinforcement
5 Cost of extra labour and materials due to changes
6 Concrete accessories 3250 Cost of materials and labour Not applicable
7 Cast-in-place concrete 3300 Cost of materials (concrete, Cost of waste materials
8 admixtures, etc.) and labour
9 Cost of equipment for concrete Cost of extra labour and materials due to changes
5011 placing
1 Materials testing 3301 Cost of testing of materials for Not applicable
2 conformance to standards
3 Concrete curing 3370 Cost of materials and labour Not applicable
4
Rework 3201 Not applicable Cost of extra labour and materials due to defects
5511
 190 Aoieong et al.

1111
2
3
4
5
6
7
8
9
1011
1
2
3
4
5
6
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7
8
9
2011
Figure 12 Typical process cost report for the process of
1
concrete
2
3
4 Improvement process
5 Once set up, the model is used for regular reporting Figure 13 Flow chart of implementing the process cost
6 on performance. Since construction processes are model
7 dynamic in nature, it is essential that the data collec-
8 tion process commences only after the construction The differences between the PAF models used by
9 processes become stable. Comparison with previous previous researchers and the proposed process cost
3011 periods can then be made and areas for improvement model are shown in Table 3.
1 identiŽ ed. Failure costs, in particular, should be prior-
2 itized for improvement through reduction in cost of
3 Advantages of adopting the process cost
nonconformance. An excessive cost of conformance
4 approach in the construction industry
may suggest the need for process redesign. It is also
5 essential that the process owners be involved in the 1. The focus is no longer on capturing the ‘total cost’
6 improvement team. A  owchart that depicts the steps of the quality of an entire project, which is rather difŽ -
7 in implementing the process cost model is shown in cult to do. Instead, speciŽ c processes in a project
8 Figure 13. can be identiŽ ed for monitoring and improvement.
9
4011
1 Table 3 Differences between the models used by previous researchers and the authors
2 Previous researchers The authors
3
Davis Rahman Low & Yeo
4
5 Approach Prevention/ Prevention/ Prevention/ Process cost
6 Appraisal/Failure Appraisal/Failure Appraisal/Failure
7 Cost measured Prevention/ Failure Failure Costs of conformance
8 Appraisal/Failure and nonconformance
9 Scope Whole project Whole project Whole project Selected processes
5011
Types of project Industrial projects Civil engineering Not yet tested Being tested in building
1
used in testing projects and civil engineering
2
projects
3
4 Emphasis Reduction of Reduction of Reduction of Continual process
failure costs failure costs failure costs improvement
5511
 Measurement of quality costs of construction projects 191

1111 Winchell and Bolton (1987) did suggest that a small- more feasible than applying the traditional PAF model.
2 scale PAF model could be used to measure quality When applying the PCM model, the resource level
3 costs in departments or sections of production. In the required in quality cost measurement will be more  ex-
4 traditional PAF approach, total quality cost is essen- ible, because the number of processes selected for
5 tially a build-up of many cost elements in many depart- monitoring can be varied according to the resources
6 ments. The micro approach proposed by Winchell and available. Moreover, when applying the PCM model,
7 Bolton, on the other hand, broke down the whole the timing in quality cost measurement is less rigid,
8 system and evaluated the effectiveness of an individual because performance is only measured at selected
9 department. Although Gibson et al. (1991) had tested periods.
1011 the micro approach in a manufacturing company,
1 there is no literature on testing such an approach in the Subcontractors’ co-operation
2 construction industry. It is the authors’ view that the In the PAF model, in order to capture the total quality
3 implementation of the micro approach in the construc- cost of a project, it would require the full co-opera-
4 tion industry is far less feasible than in the manufac- tion of all subcontractors. All interviewees agreed that,
5 turing arena, because production in a manufacturing unlike the PAF model, the number of subcontractors
6 company relies on contributions from different depart- involved in the PCM could be kept to a minimum,
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7 ments within a company, whereas the ‘Ž nal product’ of depending on the processes selected. For example, the
8 a construction company depends on the work con- number of subcontractors involved in the concreting
9 tributed by individual subcontractors (many different processes could be as low as four. However, some
2011 companies). Also, for a PAF model, it is rather difŽ cult interviewees still believed that it would be difŽ cult to
1 to distribute accurately the prevention costs to individ- obtain the subcontractors’ co-operation, because of the
2 ual construction processes, for example, the cost of reasons given earlier.
3 maintaining a quality assurance system can be esti-
4 mated readily for a construction project; however, the Other beneŽ ts
5 allocation of this cost to particular processes is not In addition to the above, the two interviewees from
6 easy. Moreover, the micro PAF model does not include certiŽ cation bodies (certiŽ cation ofŽ cers) believe that
7 process costs, and therefore it is not fully compatible the process cost model could be used as a simple tool
8 with the TQM concept of continual improvement. to measure process improvement, a requirement in the
9 2. Focus is no longer on the categorization of costs latest edition of the ISO 9000 which, in addition to
3011 (P, A and F), which may be quite difŽ cult and unsat- client satisfaction and continual improvement, empha-
1 isfactory. As pointed out in BS 6143: ‘Many of the costs sizes the process approach. Yet, they shared the view
2 can be justiŽ ed as Ž tting into any one of the three cat- that it might be too early to comment on the new
3 egories, i.e. prevention, appraisal, and failure. Process approach, since so far it has not been used as a tool
4 cost model offers a simpler categorization’ (BSI, 1992). to satisfy ISO requirements by any contractors in the
5 3. Since the focus is no longer on capturing the ‘total industry.
6 cost’ of quality of an entire project, the demand of
7 resources is considerably less, and much of it can be
8 allocated to a particular process identiŽ ed for moni- Conclusions and suggestions for
9 toring and improvement. future research
4011
1 Quality works in the construction industry have
2 Industrial feedback on process cost model assumed increasing importance in recent years. Since
3 the Hong Kong Government announced the require-
4 Eight construction professionals (two quality managers, ment that all main contractors must attain the ISO
5 two quantity surveyors, two ISO 9000 quality manage- 9000 certiŽ cation for their projects from 1993
6 ment system certiŽ cation ofŽ cers, a site agent and a onwards, about 400 ISO9000 certiŽ cates have been
7 civil engineer) were approached, and the details of the awarded to Hong Kong-based construction companies.
8 proposed process cost model (PCM) were presented to Following the implementation of ISO 9000 in the
9 them. Their comments are summarized as follows. construction industry, it is imperative to know whether
5011 improvement in quality has been achieved or not.
1 Discussion on results of interviews There are many ways for determining this. One of the
2 ways to measure quality improvement is through the
3 Flexibility and practicality measurement of quality costs. In order to quantify the
4 All interviewees shared the view that applying the beneŽ t after the implementation of the ISO 9000
5511 model (PCM) in the construction industry is much quality system, a quality cost model is proposed in this
 192 Aoieong et al.

1111 paper. Some of the beneŽ ts of knowing how and where Abdul-Rahman, H. (1996) Capturing the cost of non-confor-
2 quality costs are incurred are listed as follows. mance on construction sites. International Journal of Quality
3 and Reliability Management, 13(1), 48–60.
l Quality cost data alert management of the Ahmed, S. M. and Aoieong, R. (1998) Analysis of quality
4
potential impact of poor quality. management systems in the Hong Kong construction
5
l Quality cost data help management determine industry. In Proceedings of the 1st South African International
6
the types of activity that are most beneŽ cial in Conference on Total Quality Management in Construction,
7 Cape Town, pp. 37–49.
reducing quality costs.
8 Barber, P., Graves A., Hall, M., Sheath, D. and Tomkins,
l Quality cost data makes all personnel aware of
9 C. (2000) Quality failure costs in civil engineering projects.
the importance of quality works.
1011 International Journal of Quality and Reliability Management,
l Quality cost data indirectly urge people in the
1 17(4/5), 479–92.
2 industry to pay attention to continual improve- BSI (1992) Guide to the Economics of Quality: Process Cost
3 ment, which is a basic requirement in the imple- Model, BS 6143: Part 1, British Standards Institution,
4 mentation of TQM, and is consistent with the London.
5 spirit of the latest version of ISO 9000. CII (1989) Costs of Quality Deviations in Design and
6 Construction, Quality Management Task Force Publication
Valuable feedback regarding the practicality of the
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10-1, Construction Industry Institute.

7 proposed model was obtained by interviewing some
8 leading main contractors in Hong Kong. Comments
9 from the interviewees indicated that straight imple-
2011 mentation of the PAF model might not be possible
1 due to the complexity of the structure of construction
2 industry.
3 An alternative approach, based on the BS 6143
4 process cost model (PCM), is proposed. To the
5 authors’ best knowledge, such a BS 6143 conceptual
6 Kuprenas, J. A., Soriano, C. J., and Ramhorst, S. (1996)
model is now proposed the Ž rst time for use in the
7 Total quality management implementation and results.
construction industry. This approach is much more
8 feasible than the previously proposed PAF model as
9 one can select any processes within a project for study.
3011 Moreover, the 2000 version of the ISO 9000 standard
1 places much attention on a requirement for measure-
2 ment and monitoring of customer satisfaction through
3 reviews and ‘continual improvement’. The process
4 approach proposed could serve as a simple tool for
5 compliance with the Standard. Due to limited time,
6 the authors were unable to test the proposed model.
7 and Construction, McGraw-Hill, New York.
Further work on testing the model is recommended
8 and is planned for the near future.
9
4011
1 References
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3 Abdul-Rahman, H. (1993) Capturing the cost of quality fail-
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6 Abdul-Rahman, H. (1995) The cost of non-conformance
7 during a highway project: a case study. Construction Man-
8 agement and Economics, 13(1), 23–32.
9
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2
3
4
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Dale, B. G. and Plunkett, J. J., (1991) Quality Costing,
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