Financial benefits of ISO 9001 or other certified quality systems

[Thelma]

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

[noboxwine]

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 !

[howste]

This 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.

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

[Craig H.]

howste

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

[Randy]

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.

[Gary L. Phillips]

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.


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).

[tschones]

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

[Gary L. Phillips]

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....