ISO 9001 is a quality management system that is designed to increase the chances of meeting customer requirements, thus improving customer satisfaction rates. Through proper implementation and maturity of ISO 9001, your organization may see a noticeable to drastic effect on profitability and revenue. A model typically used to approach investments that lend future returns is the discounted cash flow method (DCF). The DCF method is a method used to determine the present value of future cash flows generated from an asset, referred to as Net Present Value (NPV). After determining the NPV you can then apply this to the total cost to generate a picture of the total investment over the long term. In the case of ISO 9001 Implementation, there are many fruits associated with the system that generate future cash flows. What follows is an overview of the future profitability potential of ISO 9001.
The most simple notation for describing profitability is Profitability = Revenue - Operating Costs. ISO 9001 contains many components that help increase profitability through decreasing operational costs and increasing revenue.
Decreased Operating Costs
ISO 9001 when properly implemented focuses greatly on processes that can help lower your operating costs. Some examples are as follows:
Training & Organization Knowledge
ISO 9001 encourages focus on training and organization knowledge. Both of these components when focused on will have a noticeable decrease in errors that occur in the organizational process. Therefore, decreasing any unnecessary resource expenditure (time, money, production inputs, etc)
Corrective and Preventative Action Program
By having a proper corrective action program in place your organization will be able to more quickly control any errors that occur, which will increase production uptime. Additionally, a preventative action program will help your organization learn from errors to prevent future mistakes.
Through a proper review of contracts at the end of the sales process, your organization can greatly decrease the chances of customer returns.
Through targeted and effective inspection programs your organization can minimize unnecessary customer returns.
On the other end of the profitability equation, you will find revenue. ISO 9001 can help increase your organization's revenue through the following:
Increased Customer Satisfaction
By achieving increased customer satisfaction you will find both a higher probability of repeat customers, as well as a higher probability of customer referrals.
The ISO 9001 standard is recognized internationally as an effective certification for quality management. For the many accounts we've worked with across all industries there has been an increase in client attention after the implementation of ISO 9001.
Sales - Contract Acceptance
In many industries having certifications like ISO 9001 is essential for contract acceptance. By having the ISO 9001 certification your organization can increase its total addressable market.
DCF Applied to ISO 9001
Through working with 100s of companies across many industries and assessing the effectiveness of the system thereafter, we are yet to see a company that hasn't generated future cash flows from the processes and practices in place from ISO 9001 implementation. We've seen companies pay off the initial investment in ISO 9001 immediately through the completion of a large contract. We've also seen companies slowly chip away at the initial investment through small wins such as a decrease in rework and RMA overtime. Every company has its own unique situation and reasons to pursue ISO 9001 certification, therefore it is hard to put a specific annual payoff percentage. Ultimately, the Discounted Cash Flow method is a great tool to use in assessing the investment decision of ISO 9001 for your organization.