Define Rework Cost

Rework cost is the money needed to repair or adjust a defective item so it meets its specifications. In any business, it’s a serious problem because it reduces profits. The idea of rework cost applies not only to defects that come up in manufacturing but also in construction and software development.

Tip

Rework cost is an expense incurred in manufacturing or other productive work. When a newly made product has defects, a rework process can fix them and make it a salable item, though the repairs cost money.

In a fairy-tale factory, all the component parts are perfect and work is done to plan using machinery that never breaks down. In the real world, errors creep in at the component level through problems with production machines or mistakes in assembly.

If testing reveals problems with an item, it goes to a rework stage where defects get fixed. Rework requires labor, equipment and materials, all of which cost money. Management tools such as rework cost accounting help you track rework expenses so they don’t get out of hand.

Rework issues also impact software development and construction. For example, software projects are notorious for scope creep. As the clients discover that more features are possible, they ask for them, leading to endless revisions. The rework costs money. When the developer sends the bill, there can be fireworks.

With building construction, previously unknown issues can surface when work gets underway. There may be problems with materials, errors in design or misunderstandings between the contractor and client. As with manufacturing, solving these takes labor and materials.

The cost of factory rework is the sum of the labor and materials costs. There are also costs such as the maintenance of rework equipment and floor space dedicated to rework. It can help to express rework as a percentage relative to sales, which you get by dividing rework cost by sales.

For example, a monthly rework cost of $1,200 divided by monthly sales of $84,000 gives a 1.4% rework rate. If the percentage decreases over time, you know your quality control plan is working, but keep in mind that if you never achieve zero, you’re in a very big club.

In manufacturing, "scrap" is a term closely related to rework. It can refer to either unused material left over from production or it can mean unusable material spoiled during manufacturing. It might be recycled but typically not reworked. Spoiled material is counted as an expense since it’s not helping your bottom line.

Like any product, software can have defects, and the company that developed the software typically pays the cost of fixing it. However, especially for custom software, the customer can also object to missing features. Even if the app works flawlessly, the client might say it’s unsuitable.

By creating a complete specification up front and with regular customer contact during development, you can avoid many last-minute problems. If the specifications are spelled out explicitly in a contract and the customer signs off on it, the cost of subsequent changes is usually the customer's responsibility. In addition to computers, supplies and labor, the cost of software rework might involve intangibles such as software licenses and training.

Even with diligent preparation, it is hard to avoid rework entirely. Although rework cost is itself a problem, it is the result of other problems such as gaps in training, incomplete specifications or equipment in poor condition. By carefully managing the various steps of your production process, you can maintain good product quality and hold rework costs to a minimum.