We keep hearing the question of why companies should pursue certification, be it because they need to justify the cost, or they want to understand how this effort will benefit their business.
The benefits of certification is a widely covered topic in our blog, but this time, let’s look specifically at the return of investment that having a quality management system in place will bring to your company.
A good way to look at this is through the model for Cost of Quality (CoQ) suggested by Armand V. Feigenbaum. The model splits into four areas:
- Prevention Costs: this refers to the money spent towards the prevention of risks, an can include quality plans, processes, staff training, creation of standards, etc.
- Appraisal Costs: this is the money spent on physically checking and auditing products and systems.
- Internal Failure Costs: money spent on reparations, or when failures occur internally, such as rework, product replacement, etc.
- External Failure Costs: this is related to warranty costs and lost business.
In sum, he adds, that the cost of quality comes down to two things: the cost of getting it right and the cost of failing to get it right.
Because one of the aim of the QMS is risk prevention, it’s hard for companies to truly realize or measure the ROI when the problems simply do not occur in the first place. However, the American Society for Quality (ASQ) provides statistical data that shows that for every $1 spent on QMS, you could expect at least $6 in revenue. Furthermore, their research indicated that with a quality management system in place you could also expect a $!6 reduction in costs, and a 3% increase in profits. Overall, costs were reduced by 4.8%.
While it might to be entirely accurate to predict, having a management system in place will certainly add value to your business, help prevent risks, and help save money.
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