Planning for optimum financial performance is a top priority for any successful business, and Total Quality Management (TQM) is becoming an increasingly important factor.
TQM is a management approach that centres quality at the heart of every part of the organisation. Big names like Ford and Xerox have invested in a TQM system, and it is now used widely among government departments and educational institutions.
The idea of TQM is that companies invest in quality now, with a view to eliminating costs relating to mistakes such as wastage, idle time, replacement costs and loss of customers in the future.
Investments in quality usually focus either on preventing future issues, or reviewing products and services to ensure high quality.
This could include:
- Training staff to ensure they are competent, therefore preventing expensive mistakes
- Improving the design of a product, therefore reducing the number of rejects
- Maintaining machinery, which in turn reduces the amount of downtime when things go wrong
As well as preventing costly issues, TQM involves regular auditing and inspection to make sure products and services meet high standards. This could include inspecting finished goods, raw materials, or even work in progress. It can also involve reviewing the service that staff deliver on a day-to-day basis, to ensure a quality service to customers.
Why use TQM?
For many organisations, the cost of new preventative measures and extra auditing will be high. However, in most cases, TQM will save more money than it costs. TQM often falls largely within the remit of finance departments, due to the amount of financial planning and reporting it involves.
- Organisations often find that the following benefits outweigh the initial investment.
- Reducing the costs of failure, including product replacement and even legal costs
- Improving reputation, and consequently increasing sales
- Increasing staff motivation, which in turn decreases staff turnover and associated costs
TQM is covered in more depth on the AAT level 4 Professional Diploma, within the Financial Performance unit. Financial performance is also central to the Chartered Institute of Management Accountants (CIMA) qualification. To find out more about gaining a qualification relevant to financial performance, get in touch below.