One of the ultimate goals of a company that implements a quality management system designed to meet the requirements of the ISO 9001:2015 standard is to see a clear improvement not only in the daily work but also in the financial performance because, if this were not the case and the company was not able to obtain a return on the investment made, certification would be quite useless to pursue.
In fact, if the implementation of ISO 9001:2015 is carried out correctly, all organizations can expect an improvement in performance, including in the financial field through:
- An increase in sales due to improved productivity and customer relationships;
- A reduction in costs thanks to greater clarity of processes and improved internal management;
- Improved processes that give rise to more consistent products and services;
- The opening of new markets and new opportunities in existing markets.
To ensure an effective quality system implementation in meeting the requirements of ISO 9001:2015, the standard requires the company to monitor and evaluate all business processes, including financial ones. The financial performance of a company is based on two main components, revenues and expenses. A company can generate revenue through the normal course of business (e.g. through sales) or less usual means (such as gain on the sale of fixed assets).
Business expenses can be divided into several categories, in order to monitor and evaluate them more effectively, but however they are assigned - to sales, production or operational management - they can always be classified into fixed expenses or variable expenses. Fixed expenses are described as expenses that do not change, even in the presence of changes in production levels or sales volumes. The most common example for this category is the rent of the premises where the company is based. It doesn't matter how much production or sales levels fluctuate; the rent will remain the same. Another example is salaries: generally it is a fixed expense, as employees are paid the same amount, regardless of their productivity.
Payments, on the other hand, of overtime, bonuses or commissions can be classified as variable expenses, as they generally increase with increasing sales and / or profit margins. There are some variable expenses that are sometimes overlooked by companies, such as bank surcharges when customers make payment by credit card or delivery charges to customers. Understanding your variable expenses is very important to ensure that you do not unconsciously set the price of your products or services below the variable cost.
In addition to the quantitative components of a company's financial performance, there is an additional cost that is not related to profit or loss and that is often overlooked by management. It is the cost related to opportunities. The cost related to opportunities is the loss that is suffered when one alternative is chosen over another. For example, when you decide to produce product "A" which will generate, let's say, 500,000 euros in sales and 40,000 euros in profit but, consequently, you sacrifice the production of product "B" which could lead to 400,000 euros in sales but provides 50,000 euros in profit, the cost related to the opportunity is 10,000 euros. Before making any managerial decisions, it is essential to understand all the facts and related costs, both visible and invisible.
Understanding the revenue stream and the cost structure of your company as part of your planning, evaluation and monitoring processes will certainly help the organization achieve the objectives it has set, increase its financial strength and improve the chances of seizing the opportunities that arise, which is absolutely essential to continue adapting to the context, gaining a competitive advantage and surviving in a constantly evolving environment.