Hello,

I´m working on a project where I´m trying to find some scale to measure the financial benefits of having certified quality systems. Is there anyone out there who has any experience in this issue and would like to share it with me?

Best regards
Thelma

Welcome to the Cove ! I could go on for days with this one but will keep it short and to the point. First, forget about certification. In my experience, it's a complete waste of time and money. If you need certification, okay, but construct the system for yourself, around the ISO model, with only one thing in mine: Make it better. How do you measure it ? Easy. The bottom line tells you how effective your system is. Every single one of my Management Review performance indicators are tied to $$---e.g.----scrap, rework, man hours, efficiencies, variances, customer returns, corrective actions,,,...... This kinda thing: We implemented a visual Process Instruction project in assembly. Our man hours per unit decreased by .11, at a rate of $ 85 and 5000 units a week for a savings of $ 233,000 annually. Our customer returns in that product group also decreased by $ 74,000 in a year. See ? Corrective Actions reduced scrap by .5% for an annual savings of over 300,000. It's all about money and the ISO model is conducive to this. Make it easy. And, if you can't measure it, you can't manage it. Chew on that and let me know if I may be of further assistance. Have a day ! :bigwave:

This (http://personal.anderson.ucla.edu/charles.corbett/papers/does_iso_9000_pay.pdf) links to a recent article that addresses this issue from a larger scale than within one company - I think noboxwine has covered that point. The article takes data from multiple ISO 9001 certified and non-certified companies and demonstrates the differences in financial results over a period of years. Hopefully this may give you some ideas. :D

Big file Warning! - 900k pdf file...

howste

That is a very interesting article, and one that I am sure will be refered to again in the Cove.

Put this into the mix....

If a whole herd of companies don't implement a certified quality system they won't need to worry about financial benefits...there won't be any money coming in from their customers.

And that's a fact.

Hello, Thelma, nice to know someone outside our industry (Quality/standards) is taking some kind of notice. :) A lot of different industry (read: quality) journals have had some kind of article about the benefits of registration. This, however, usually was self declarations from organizations about how they reduced cost, improved production, etc. There is a published report that came out recently that has some interesting data.

:thedeal:
Three different graduate schools (I believe, might have been four) wanted to do a study on the benefits of an organization's registered quality management system. The way they did this (independantly working ? I don't know) was to look at the four years that had the most registrations in four or five major industriy sectors. They could only use publically traded companies because they wanted to mix even the financial/marketplace aspects into the equation.

They then took the companies and back tracked about three years supposing that the initial decission and implementation program took three years to reach the end (registration). They monitored the companies' financial/marketplace standing over the next four (I believe) years for improvement. During all this time the various companies chosen were compared to several of their key competitors (some with better marketplace position) -also publically traded- that had not implemeted an ISO quality management system.

The results came in not based on a organization self declaration of its success, but rather on a well developed method of looking at a lot of business factors by graduate business students. The registered companies won hands down almost all categories monitored showed that the registered organizations had quite a large gain over their competitors even those in which they were orginally behind.

I'm trying to remember the link to the study, an exerpt is free; don't know what the cost is (or will be) when it is published (might be already, the exerpt came out several months ago). :cool:

Thelma-

First of all welcome to the Cove.

Nobox has pretty much got it right. I've stated in other threads, ISO certification value can only be directly measured on the top line, not the bottom line. If you have to have ISO certification due to the market or your customers, then that will directly impact your revenues. But if you don't, like Nobox said, just use the ISO model as a framework to build a business operating system, but do it better. And as Nobox said, then set metrics that will allow you to measure the cost benefits of your new system.

My last comment is how can an organization claim that "ISO certification helped us make or save this amount of money...." when any organization can go out and implement a business operating system based on the ISO standard (without obtaining ISO certification)? An organization can only say "we increased revenues by X due to ISO certification."

Tom

Thelma, and All; sorry for the delay, had to search for a while to find the link to the report I mentioned earlier in this thread. This was sent to me from Larry Whittington, who also teaches courses through the Center for Excellence at Southern Polytech in Atlanta, GA. I get his newsletter each month and is always loaded with great information. I do not think he will mind my posting this, since I have given him due credit.

This concerns the FINANCIAL BENEFITS OF HAVING A CERTIFIED MANAGEMENT SYSTEM, which you asked for, and is from his April 2003 newsletter: :)


" 1. ISO 9000 Registration Earns Financial Rewards



Companies traded on the New York Stock Exchange that are ISO 9000 registered show significant improvement in their financial performance compared to firms without the registration. Analyzing the impact of ISO 9000, researchers from UCLA, the University of Maryland, and the Universidad Carlos III in Madrid, found there is a direct correlation with a firm's return on assets.

"When we began this research in 1997, we were very skeptical and we were shocked by the magnitude of the effects," says David Kirsch of the University of Maryland." Not only did the 7598 studied firms with ISO 9000 registration improve their performance, but firms without ISO 9000 experienced substantial deterioration in ROA, productivity, and sales.



"Immediately after deciding to seek registration, firms experience a productivity improvement, while non-registered firms see no such improvement and eventually experience a gradual productivity decline" said the researchers. "It is clear that ISO 9000 registration did lead to relative improvements in ROA, primarily through increased productivity."

In the industrial machinery and computer sector, the ROA of certified firms after three years increased by a relative difference of 37 percent. "Non-certified firms experienced a substantial loss of productivity and sales compared to certified firms," according to the researchers. Non-certified firms in the electronics and electrical equipment sector suffered a drop in ROA that amounted to a relative difference of 55 percent by three years after registration. The ROA in non-certified chemical companies lagged by 12%.



"Given the magnitude of the performance improvements, it seems likely that other effects than ISO 9000 contributed. However, due to the use of performance matched groups and the persistent nature of the relative improvements, our findings do strongly suggest that the preparation for the ISO 9000 registration also contributed to the superior performance. The good news, clearly, is that, in all analyses we conducted, we found significant improvements in ROA. From that perspective, we can answer the question of 'Does it pay to seek ISO 9000 registration?' with a resounding 'YES!' "

For more information on the yet to be published paper, contact the authors, David Kirsch, of the U. of Maryland at dkirsch@rhsmith.umd.edu, or Charles Corbett at UCLA at charles.corbett@anderson.ucla.edu. See an expanded article on the study at Manufacturing and Technology News <http://www.manufacturingnews.com>. "

I have not read the full report, however is quite interesting that the study shows exactly what a lot of people in the auditing/registration business has known all along --- IT JUST SIMPLY PAYS OFF ! ! !

Remember, however that this study was conducted using companies that were registered to the now defunct ISO 9001:1994 series of standards. The benefits of becoming registered to the new ISO 9001:2000 edition will (or at least should be) much more impressive, given that this new revision has the word improve(ment) over a dozen times, usually in conjunction with the word continual. This is woven like an embedded thread throughout the requirements, because the standard and the registrars assessing and organization want to see that there is improvement taking place on an on-going basis. The 1994 standard (which was the standard used in the study) only addressed improvement once and that was in regard to corrective and preventive action.

As it happened, there were companies which just did not improve their products/services and a lot of companies produced crappy products, which still leaves a bad taste in some of our mouths. There was not a lot that a registrar could do about this, since this is a system and not a product certification.

NO MORE ! ! !

Since the new standard requires improvement, improvement must be evidenced, which is probably why some companies did not transition to this new edition of the standard.

It will be interesting to see another report in a few years based on these new requirements...veeerrryy inteerrresting.... :cool:

Companies traded on the New York Stock Exchange that are ISO 9000 registered show significant improvement in their financial performance compared to firms without the registration...

"When we began this research in 1997, we were very skeptical and we were shocked by the magnitude of the effects," says David Kirsch of the University of Maryland." Not only did the 7598 studied firms with ISO 9000 registration improve their performance, but firms without ISO 9000 experienced substantial deterioration in ROA, productivity, and sales...

The question I have after reading this article (and I have read several similar to it) is:

Was this study a comparison of companies where ISO 9001 had been implemented and they received ISO registration versus companies that implemented ISO 9001 and did not seek registration; or is this a comparison of ISO 9001 implemented and registered companies versus companies where ISO 9001 has not even been implemented?

My understanding is that this study depicts the change found when ISO 9001 is implemented in a company versus one where there is no formal ISO-based quality system. Which still does not show us the value of formal registration. :thedeal:

The question I have after reading this article (and I have read several similar to it) is:

Was this study a comparison of companies where ISO 9001 had been implemented and they received ISO registration versus companies that implemented ISO 9001 and did not seek registration; or is this a comparison of ISO 9001 implemented and registered companies versus companies where ISO 9001 has not even been implemented?

My understanding is that this study depicts the change found when ISO 9001 is implemented in a company versus one where there is no formal ISO-based quality system. Which still does not show us the value of formal registration. :thedeal:

Must appologize, my mistake :o ! I did not ask everyone to read the title or the fisrt couple of paragraphs:

The title was about the rewards of ISO Registration

The first paragraph compared 'registered firms' with firms 'without registration".

The fourth paragraph compared 'certified firms' with 'non-certified firms'.

I do not know what else to say, but to be registered or certified (means the same) requires that a registration body conducts a third party assessment, and normally a six-month continuous assessment, against a particular standard.

This means that the companies in the report mentioned did not self declare their status (We at XXX, Inc. are compliant with the requirements of the ISOxxx standard--HOG WASH), or that they used the standard as a 'basis' for controlling their operations; it means that the firms undergoing were assessed by a competant registration body and found to be in compliant by the registrar's assessment team (read: registered/certified).

Ya know if a company went through all of the hair and teeth pulling to implement a compliant QMS system-along with all the financial and human resourses required to complete the task; why in the world wouldn't they seek registration????????

Because by the time they are at that point, the additional cost associated with contracting with a registrar is small potatoes. I think that those who self declare most likely would not pass a registration assessement. :cool:

Ya know if a company went through all of the hair and teeth pulling to implement a compliant QMS system-along with all the financial and human resourses required to complete the task; why in the world wouldn't they seek registration????????

Because by the time they are at that point, the additional cost associated with contracting with a registrar is small potatoes. I think that those who self declare most likely would not pass a registration assessement. :cool:

The cost of registration is not small potatoes by any means especially when you consider that you're having to make a long term commitment to continue to pay for the "continuing assessments" and every three years you have to pay for a new certificate, etc.

Additionally, with the high amount of variation in ISO auditors that has been discussed in this thread what value have you gained from receiving their stamp of approval? Some will approve almost anyone, and others add their own (non-value added) "requirements" before they give you their approval.

So yes, you can implement an ISO-based quality program so that your organization can gain from the financial benefits of a defined and improvable quality program (and many companies have done this); but you may question the value (especially in today's economy) of paying for the registration process. Why not reap the benefits, without the added cost? Unless you have customer's that are driving the registration process - then the threatened loss of business may make registration a value. :bigwave:

Of course, there is an added cost for registration; however, considering all the cost that normally is spent developing and implementing a system (most companies do not really understand how much it does cost to implement and maintain a compliant system), it isn't that much more.

If I worked for a company and was asked to implement an ISO XXX system but was told that the organization did not want to seek registration, I would get them on the road with the appropriate training, etc and then I might be looking for another employment possibility.

It is hard enough to manage an implementation project -poking and prodding people all along the way- when they know that the senior corporate officials have deemed this to be a high priority inititive, and that heads will roll if they are not successful. I do not think I would want to put my organizational future on the line in an attempt to get a system built in a firm where everyone knows that there will never, ever be an outside group that has to make the definitive decission as to whether or not we actually are indeed compliant.

Addressing the registration auditor issue, the IAF has made great strides in getting all registrar bodies calibrated to singular thinking and damanding that the auditors within a registrar's organization is also, in order to preclude the auditor differences in interpretation of the standard(s). The interpretation question is really only concerning a very few sub and sub-sub clauses, anyway. Nearly every assessor I know of today uses a pretty good set of consistent interpretations with the 9K:2K standard, which if an organization shows that their method (in these 'grey'areas) works best for them the assessors usually will accept that.

Now there are some auditors in the registration process that simply put,should have never been an auditor in the first place, and I would be the first to say that they do nothing but create problems for everyone else. ****can 'em !
This goes double for registrars who are willing -and allowing their assessors- to turn a blind eye to systemic problems and still issue certifications or maintain the certification of organizations who are mavericks. I do not think there is a need to give names. A lot of us know who they are. I think that the RAB here in the U. S. should do more to address the issue of poor assessment preformance of those in the registration business...my opinion. Of course, the RAB probably takes feedback from the registrar's client(s) to determine which registrar to monitor more closely, and what company in their right mind would drop the dime on their registrar who has been sooo good and eeeasy on them! If it were my company, with that attitude, I'd go somewhere else, 'cause they are not wanting to improve or change (read: enhance) their business posture or marketshare. :cool:

Amusingly enough, during my big annual huge honkin' Business Management System review a few days ago, a topic almost similar to this thread came up.

Our company went for ISO 9002:1994 because we told to do so by our former President, whose background was Sales. Thankfully, when the system was implemented (prior to my arrival), it was done hand-in-hand with the Management System developed by our Brasillian parent company. What was developed, was a Management System of which ISO 9002 was a component...not the other way around. We attained our registration to ISO 9002:1994.

Recently, we successfully transitioned to ISO 9001:2000. Discussions with our Customers show that being registered is not necessarily a requirement of theirs. They bought from us because we were the best. Quality products and service in a niche market.

The proper implementation of the Management System is what saved us. Compliance to the requirements, adherence to what we were taught from South America, and the discpline to carry to forward every day is what has made us one of the few profitable plants in our family. ISO 9000 is just a tool within our Management System...it is not the be-all-and-end-all of it.