INTEGRATION OF TQM AND FINANCIAL MANAGEMENT: IMPACT ON PROFITABILITY AND RISK
Keywords:
Total Quality Management, profitability, financial risk, process variability, integrated measurement systemsAbstract
This paper examines the mechanisms through which Total Quality Management (TQM) influences firm profitability and risk, integrating quality principles with financial performance indicators and operational stability. The analysis begins from the premise that TQM is not merely an operational tool, but a strategic system that reduces process variability, lowers the costs of non-quality, and enhances the predictability of cash flows. The theoretical framework explains how leading quality indicators—such as defect rates, process capability and first-pass yield—translate into lagging financial metrics including margins, ROIC and free cash flow. The proposed measurement model incorporates cost-of-non-quality quantification, sensitivity and scenario analysis, and panel econometric models with fixed effects that link TQM maturity to profitability and financial volatility while controlling for firm size, industry and leverage. The findings reaffirm that TQM simultaneously acts as a driver of profitability and an embedded mechanism of risk mitigation, enabling organizations to achieve long-term sustainability, more stable revenue streams and stronger resilience to market and operational disruptions.Downloads
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Copyright (c) 2025 Gruja Kostadinović, Marija Ilievska Kostadinović (Author)
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