How Complacency Costs us Billions 3

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Wednesday, April 13th, 2016
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“The measurement of quality is the price of non-conformance,” wrote Phil Crosby, a world authority on quality control, in 1979.

Nearly 40 years later, complacency in the quality of manufactured goods is resulting in unacceptable and unsustainable costs for Australian industry, for the community and for governments trying to reduce regulatory red tape.

When human harm occurs, it hits the news, and it is only then that questions get asked and sometimes answers and action and appropriate accountability and responsibility is made.

The problem we face now is a passive reluctance to act on known failures. Why is this so when the threat to human lives and livelihoods is real?

It seems we only attribute real action, whether to correct a broken system, repeal faulty goods or take more drastic measures, when harm to human well-being is imminent.

A case in point is the 40,000 homes across Australia wired with discrepant electrical cabling, resulting in a recall costing $80 million. Not only has it cost everyday homeowners money, people must also contend with stress, inconvenience and asset value drop to their homes and investments.

An Australian senate report on the issue, scheduled for March 16, has been delayed for the third time.

Building ministers, industry bodies, manufacturers and innovators are waiting for the outcomes of this inquiry. Australian Industry Group published a formative report on non-conformance in November 2013.

Three years will have passed before we see action. And it will cost us.

Many billions are lost in rework, lost productivity, jobs, skills and harm to real people and to the environment – built and natural – as a result of inaction.

The economic cost is perhaps the clearest and easiest to estimate. To put a dollar value on just the rework and repair component as a percentage of total spend, it is in the order of two billion dollars per year. The sums accumulate and compound when we consider consequential costs or ‘externals’ – those consequences too difficult to put an accurate price on.

When we wait, the delay escalates impact, the impact deepens and the billions progressively add up.

The compounding effect of non-compliance means that avoidance costs multiply to become repair, replacement and litigation costs.

In short failures are being built into our homes and offices.

We may be able to quantify manufacturing expenses of waste and subsequent replacement, repair and litigation, but how do we measure the impact on human well-being?

Unless there is an accident incurring injury, lost wages and medical expenses, it can be difficult to measure, but the cost remains there.

The stress, angst, loss of trust and savings invested, especially when we consider the newly built homes, a family’s biggest assets, a place of comfort and quiet enjoyment. Add to this the workplace and community facilities, which have real and negative impacts.

Investors see loss of asset value, asset owners and financial institutions. The risk-adjusted returns are absorbed in reduced performance of our superannuation funds and the asset write-downs result in shorter life cycles and increased maintenance. You and I ultimately foot the bill.

In the end, it is the consumer, the public and private individual who bears the cost.

Who is at risk when structures fail or values drop? Who pays for the litigation? The recent Senate inquiry tables many unfortunate submissions detailing direct results of quality failures felt by private occupant owners and the disadvantaged worker.

Documented in the Senate inquiry submissions is the heartache of lost dreams. This unfortunate situation is replicated across the nation. Homeowners are dealing with discrepant buildings, products and workmanship that do not meet design or specified measures. Buildings suffer material failures that lead to litigation, leading to financial hardship and pursuit through impossibly convoluted administrative appeals.

The issues caused by non-conformance degrade public trust in the system intended to support it.

How can dollar values be fairly attributed when human well-being is concerned?

How can responsibility be shared where the pain of cost flows neither to those who are not responsible nor in a position to foot the bill?

What dollar value do we place on quiet enjoyment and a home or an office fit for purpose? These issues need to be genuinely considered and addressed in any proactive response to issues of non-compliance.

Possibly the slowest most insidious impact on human well-being and the hardest to reverse is environmental impact. Needless to say, environmental factors need to be considered also and should not be seen as external costs.

Where there is waste, there is impact on our environment. This may be through the extraction and use of unnecessary material – scrap and overproduction – or it may be through the release of harmful substances like volatile organic compounds, glues or asbestos. Once the product leaves the design, fabricate and supply section of the supply chain, the waste is locked in and destined to be borne on the next stakeholder in the supply chain.

The cost is then also handed to the unsuspecting recipient, compounding and growing the economic and social cost and environmental implications through the linear passage of supply, build, own and discover and rectify.

Through complacency – waiting or believing it is someone else’s responsibility – we take no action. We build in failure, cost and loss to our built assets, our communities and the environment.

We as consumers, manufacturers, regulators and government must act.

The price of non-conformance is too high.

It’s time to weigh up the costs and demand action, now!

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3
  1. Lee Kuzmanovic

    An excellent article. Quality assurance in business is totally understood.
    Where quality is embraced as a philosophy and not a manual with forms and checklists , a business will thrive .
    The eight principles of quality should form the foundation of business management whether the business builds houses or bridges .
    Quality requires responsibility and accountability at all levels and within all processes . Put simply quality assurance truly applied will prevent every issue in terms of materials, design life , safety and people.
    Non conformance is a symptom of failed systems. A quality system implemented in the true sense will manage the non conformance ,
    Thanks Lee

  2. Anne Paten

    Well written, Peter.
    Human cost or not, Peter, sadly there has been no accountability or responsibility for 30 years and that is how we arrived at this place at this point in time. This year we estimate the overall financial loss to Australian consumers from bad building and non-conformance will be around $36 Billion across the country. As for 'public trust', that was lost a long time ago.
    As to the built environment, we are approaching if not arrived at third world status – especially when 855 of new apartments in NSW are defective (2012 Uni of NSW Study)!
    Who cares? Certainly not the beneficiaries and their pollie partners. Industry needs to step up to the plate and join with us as consumers – otherwise the rot will continue and worsen.

  3. Anne Paten

    Correction. Comment below should say 85% of NSW new apartments!