Implementation Cost of ISO 9001 Certification
Many companies under-estimate the cost of getting ISO 9001 certification. This is because companies only look at the direct costs. But the direct cost is probably the smallest portion of the total cost. The total cost of ISO 9001 certification come from 3 basic elements:
- Indirect cost of maintaining a quality focused organization. This can be done with or without ISO
- Indirect cost of doing additional operations only for purpose of maintaining an ISO certification
- Direct cost of registration
Indirect costs with a quality focus
Many elements of the ISO 9001 standard are a no-brainer for a quality-focused company. Processes like engineering change order system, revision control of documents, receiving inspection, and some form of management review should be in place at any company with a history of more than 3 years. Therefore, these are not additional cost of ISO, they are the minimum requirements for growing a long-term successful business and should not be including in the analysis of whether to implement ISO or not.
Indirect costs with an ISO 9001 focus
There is a significant ISO 9001 requirements that is simply record keeping for the main purpose of maintaining the certification. This cost is dependent on the size of the business but for the sake of discussion, it is at least one half-man year per year. The ISO 9001 requirement is typically for some high level tasks that require an understanding of quality systems and the ISO 9001 standard and some low-level tasks that are basic filing, data entry, and maintenance function. Based on this my ballpark for justification purposes is $40K per year (minimum). This could be split between a clerk and a consultant or you could get luck and hire a clerk that want to learn ISO 9001 without being paid extra for responsibility. You can easily double that number if the company has poorly designed system that put a drag on all the employees.
Direct Costs of Registration.
An ISO 9001 certification audit can run from $10-25K for small and mid-size companies. This is based an a 3 to 5 man-day audit with an average cost of $3000 per man-day plus travel expenses. ISO 9001 maintenance audit is usually much shorter, averaging about $5-$10K for a 2 man-day audit.
Here are 2 examples
Company A is interested in growing their company and they understand that quality is key to the long-term success of their business. Company A already has focused resources assigned to finding and correcting quality problems. The resources are not used for production and are motivated to build the company’s quality reputation. They already have a quality goals and a continuous improvement program. The company has a basic structure for non-conforming material, ECR/ECO and maintaining calibration equipment. They are considering ISO 9001 to take the company to an even higher level of quality.
In this case the company will take the ISO 9001 program serious and will use consultants to help develop a truly efficient system that improves quality and decreases cost of manufacturing. They will add personnel to help maintain the ISO 9001 program. The ISO program will help focus the company, will increase customer satisfaction, and generate more repeat business. The moral of the company will be boasted that company will build a desirable reputation as both an employer and a supplier.
The cost of ISO 9001 is $150,000 for the first year and $100,000 per ongoing year for personnel and direct audit costs. Because of the combination of ISO 9001 and an effective, focused quality organization, the company sees an bottom line growth of around 5 to 7%. They payback on their ISO 9001 program is about 2 year and the company grows to be a leader in their field.
Company B says they are interest in quality but does NOT have any resources totally focused on improving quality. All resources are share with production and they have the goal of shipping product first and quality second. They decide to implement and ISO program because marketing says they need the certification to help sell their poor-quality products into new markets like Europe.
In an attempt to Implement the absolute minimum requirements of ISO 9001, they pull engineering resources off any product or quality work and assign them work on the ISO program. The staff is stretched to limit so they develop ineffective system that are a burden on the company. The product quality continues to drop due to neglect and the company has a hard time getting any repeat business because the product failure rate is so high. Moral continues to drop as many of the more conscientious employees leave because of frustration about the lack of resources and lack of focus on product quality. The engineering team is talented (as most are) and they manage to scrap together the minimum systems to meet the external ISO9001 audit.
The direct cost is only the cost of the registration audit, about $12,000. Year after year, the company manages to squeak past the auditors and maintain the certification. The company struggle with sales since no customer will buy a second time after finding out how poor the quality of the product is. The poor resource management at the company results is no growth year after year and little or no bottom line profits. There is no payback on the ISO program because is so critically understaffed.
The moral of the story is: DO IT RIGHT OR DON'T DO IT AT ALL.