Consumers Are Willing to Pay for Quality

Increasingly, today’s homebuyers want energy-efficient, low-maintenance, well-insulated and well-sealed homes. Survey data in the last few years has also shown that consumers are willing to pay a premium for these types of homes and that they are typically more satisfied with them than with their previous, less efficient homes.

The design and construction of these homes requires more precise tolerances than typical code-minimum homes – every system within the home is interdependent with the others in the whole-house system. Builders need to be more deliberate and exacting with the implementation of high-tech, innovative green products and construction techniques. Quality management creates a solid process foundation for a home builder to ensure the right steps are taken at the right time and in the right order to deliver the best product possible to the homebuyer.

By coupling quality management systems with high performance home building techniques, builders are likely to create satisfied customers and, as a result, increased profit.

The Economics & Value of Quality

With high performance homes, energy performance and cost savings are quantifiable. The economic benefits of energy efficiency for both the builder and, ultimately, the homeowner are also quantifiable. Implementing a quality management system for high performance homes can reduce the construction costs and cycle time, and address all of the home's features from design through construction, but there are some builder costs associated with implementing a quality management system. These include the costs for prevention, appraisal, and the cost of failure that can directly affect the economics of energy efficiency upgrades in a high performance home. An effective quality management system should create efficiencies and related savings that are greater than the investments in the quality activities required to achieve the savings. However, the costs of quality can be difficult to measure.

The economics of quality include the fact that there are costs to prevention, appraisal, as well as costs of failure. Ultimately the goal is to be able to track the costs and benefits of each to determine the most cost-effective solution.

The goals of a quality program include reducing the overall cost of quality and to ensure that the majority of costs are spent on preventing and catching defects rather than on correcting failures. The aim is to then also reduce the cost of prevention and appraisal in the process. Understanding the cost of quality and its potential impact are two of the most fundamental aspects of quality management.

Cost of Quality Definitions

Prevention: Cost of all activities specifically designed to prevent poor quality in products and services.

Appraisal: Costs associated with measuring evaluating or auditing products or services to assure conformance.

Internal Failure: Costs resulting from products or services not conforming to requirements or customer user needs, which occur prior to delivery or shipment to the customer.

External Failure: Costs resulting from products or services not conforming to requirements or customer / user needs which occur.

Measuring the Cost of Quality

One important step to quantifying quality is measuring the success of quality management in your business. It is important to document schedules, energy performance, costs, training, satisfaction, referrals, productivity, and warranty/defects. Consistently measuring these elements of your business will allow you to determine where you stand and where you can make improvements to save time and money and increase customer satisfaction along the way.

Schedule

Construction Schedules (in working days) with Milestones - Measuring this allows you to gauge what will constitute on-time delivery of a home by schedules milestones, and allows you to hone in on areas for improvement, resulting in opportunities to reduce cycle times and cost. Some categories to include in this part of the equation are included below, but these should be customized to your individual construction practices.

• Design
• Contract signing to closing
• Contract signing to excavation
• Excavation foundation
• Excavation back fill
• Weather days
• Framing
• Frame start to certificate of occupancy
• Rough mechanical
• Drywall
• Trim
• Pre-punch to closing
• Testing
• Inspections

On Time Delivery – To track this, you must first determine your own definition of delivery to the customer (such as closing). Once this is defined, and based on the construction schedule, the on time delivery can be reported as a simple yes or no. Beyond this, you can relate the on time delivery as a percentage of projects completed.

Energy Performance

Air Infiltration Testing – Result of the blower door test to measure the air infiltration (leakage) of the home to the exterior.

Duct Leakage Testing – Result of the duct blaster test to measure the leakage of the duct system to the exterior and the interior to determine heat loss and delivery efficiency of the duct system.

Building America Benchmark/HERS Index – This uses energy simulations, the air infiltration, and duct leakage measurements to estimate the energy use and costs of the home.

Costs

Profits – This details the profits for the project including:

• Gross Profit= net sales minus cost of goods sold
• Net Profit= gross profit minus total operating expenses

Inspection Costs – This details all costs involved in checking and rechecking someone else’s work and include, labor, vehicle use, fuel costs, etc. Ideally, of course, they should have checked and done right themselves the first time, but that can be addressed and improved upon once you begin to quantify this information.

Verification Costs – This details the costs to verify the performance of the home including the air infiltration testing, duct leakage testing, and any third-party program verifications/certifications such as Builders Challenge, Energy Star, National Green Building Certification, etc.

Warranty Costs – This can include all costs including labor, fuel, trucks, material and time for rework and repair for customer call backs. It can also include litigation and insurance costs.

Training

Training Costs – Includes all training courses, books and other materials and may include overhead for internal management time for training and even time taken from work to attend certain company-wide meetings.

Satisfaction Levels – Customer, Employee, Trades, Etc.

Customer Satisfaction – This is a score reflecting detailed aspects of the construction process and/or the overall satisfaction of the client with the process and finished product. The higher the score, the better the chance of referrals and return work in the future.

Warranty Customer Satisfaction Rating – This can be a detailed customer satisfaction score or sub-score that allows you to focus on sub-sections of your post-construction/warranty process and key individuals in that process. This helps focus on specific areas for improvement.

Construction Manager Customer Satisfaction Rating – Similar measurement to Warranty Customer Satisfaction Rating above. 

Trade/Supplier Satisfaction – This metric provides insights into the satisfaction of your trades and/or suppliers. Finding potential new trade partners, evaluating them, training them to meet the construction and delivery schedules, scopes of work, etc., is time consuming and expensive. You want to maintain your experienced trade partners. A trade/supplier satisfaction survey allows you to uncover dissatisfaction you can address. It also provides your trades and suppliers to an opportunity to suggest improvements that may save time or money on the job. As with customer satisfaction surveys, there are various rating systems, survey approaches, and time periods for conducting trade/supplier satisfaction surveys.

Employee Satisfaction – This provides insights to the morale and culture of your organization and is focused on reducing the rate of employee turnover by gaining feedback on how you can make the work-life of your employees better. Hiring and training new employees is very expensive; maintaining your trained, experienced, existing employees is a good investment. There are various rating systems, survey approaches and time periods for conducting employee satisfaction surveys.

Referrals

Referral Rates – This details the percentage of customers that actually referred someone to your business.

Productivity

Sales per Employee – This measures gross sales/revenue divided by the number of employees and provides an insight to how productive your company is.

Units/Projects per Employee/Trade – This is another measure of productivity.

Warranty/Defects

Number of Warranty Calls – This can be measured as call backs per customer/home sold. Obviously the fewer of these the better. The fewer there are, the higher the customer satisfaction and referral rates will be. And, of course, fewer callbacks result in reducing the unnecessary costs incurred which reduce your profit margins.

Time to Complete Warranty Calls – This is measured in days from the time the customer called until the work is completed. If the customer calls back later on this same issue, i.e., the issue was not adequately resolved, then it gets added on to the original issue length in days. This reflects how well your company responds and corrects issues the first time. Longer times to complete warranty issues result in reduced customer satisfaction scores, chances for referrals, and potentially in the customer “poisoning the well” on your reputation with other potential customers.

Walk Through Pre Punch Defects – This is the number of defects found by the inspector or superintendent on a final walk-through of a home. This number is reflected in defects per square foot of the home. The more defects found, the more rework needs to be done. This is unnecessary (it was not done correctly first time even though you paid for it) and further reduces your profit margin.

Customer Walk Through Defects – This metric is the number of defects found by the customer on a final walk through of their home. This number is reflected in defects per square foot of the home. High numbers of defects will reduce your customer satisfaction score and also the possibility of referrals.

Quality management techniques can benefit any builder, but they are particularly beneficial for high-performance home builders who benefit from the consistent implementation of a quality management program to meet an increased level of precision and scrutiny. Effective quality management techniques ensure homes are built as designed and help builders take trial features and details and incorporate them into their standard building practices. Bottom line, quality management principles can save those already building high performance homes, or those considering building them, significant time and money.

Much of this information was compiled from the work Home Innovation Research Labs conducted as a Building America team and from our many years of administering the Home Innovation Quality Certification Program (formerly the National Housing Quality Program). For more information on how documented quality management systems can improve your business and provide greater flexibility in the types of homes you build, contact Home Innovation Labs.

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