Outsourcing Internal Auditing
Obtaining registration to an ISO standard such as ISO9001, AS9100, TS16949, or ISO14001 is an excellent step in optimizing the management of your business. Maintaining the requirements of the standards is another question.
Many managers and business owners find that in real life, their calculated financial assumptions for running their ISO system fail to address the financial impacts of pulling internal personnel from their "money making" jobs.
The most obvious calculation is to look at the wage of that Internal Auditor for that day and assume that the salary of an existing employee is a sunk cost.
However, in reality, if a company is pulling Internal Auditors from the production line or from production management, the opportunity cost of production needs to be figured in.
For example; if a machinist typically produces parts worth $1000 in gross revenue to a shop, but that person spends his day performing Internal Auditing activities instead of producing those parts, then that $1000 in gross revenue is lost for the company for that man day. The cost to the shop is the lost opportunity cost of $1000 plus the fully burdened labor wages of that employee (let's say $250 per day).
If that same machinist also needs Internal Auditor training for a day, then that additional $1000-value man day should be factored in PLUS the wage cost of the trainer (usually a higher paid manager or external trainer).
These are just the daily hard costs of Internal Auditing. Also to consider are the softer costs of Auditor turnover, scheduling, management intervention, quality risks, stress, and the risk of registration failure that could result in the loss of a customer.
Outsourcing Internal Auditing to a company like ISOmatrix ( www.isomatrix.com/maintenance.htm ) is a cost effective way to stay on track. Scheduling an independent entity to focus only on that auditing task without the distractions of the production responsibilities results in a highly efficient and streamlined Audit. Using a professional experienced auditor can shrink the amount of time it takes to complete the audits and deliver a report that the registrars appreciate. The end result should be a smooth application of the ISO Quality Management System that actually optimizes your business processes.
www.isomatrix.com
Many managers and business owners find that in real life, their calculated financial assumptions for running their ISO system fail to address the financial impacts of pulling internal personnel from their "money making" jobs.
The most obvious calculation is to look at the wage of that Internal Auditor for that day and assume that the salary of an existing employee is a sunk cost.
However, in reality, if a company is pulling Internal Auditors from the production line or from production management, the opportunity cost of production needs to be figured in.
For example; if a machinist typically produces parts worth $1000 in gross revenue to a shop, but that person spends his day performing Internal Auditing activities instead of producing those parts, then that $1000 in gross revenue is lost for the company for that man day. The cost to the shop is the lost opportunity cost of $1000 plus the fully burdened labor wages of that employee (let's say $250 per day).
| Fully burdened Wage | $250 |
| Opportunity cost of production | $1000 |
| Total Wage Costs per day | $1,250 |
If that same machinist also needs Internal Auditor training for a day, then that additional $1000-value man day should be factored in PLUS the wage cost of the trainer (usually a higher paid manager or external trainer).
| Fully burdened Wage | $250 |
| Opportunity Cost of Production | $1000 |
| Trainer's wage | $500 |
| Total Training Costs per day | $1,750 |
These are just the daily hard costs of Internal Auditing. Also to consider are the softer costs of Auditor turnover, scheduling, management intervention, quality risks, stress, and the risk of registration failure that could result in the loss of a customer.
Outsourcing Internal Auditing to a company like ISOmatrix ( www.isomatrix.com/maintenance.htm ) is a cost effective way to stay on track. Scheduling an independent entity to focus only on that auditing task without the distractions of the production responsibilities results in a highly efficient and streamlined Audit. Using a professional experienced auditor can shrink the amount of time it takes to complete the audits and deliver a report that the registrars appreciate. The end result should be a smooth application of the ISO Quality Management System that actually optimizes your business processes.
www.isomatrix.com
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