Evil twins or blood brothers? Process optimisation and process costsDecember 31, 2015 | Markus Schwarzer

bf4z.storyEvil twins or blood brothers? Process optimisation and process costs.

One of the most exciting elements of business process analysis is certainly process optimisation with the process cost calculation at its core.

Optimisation 

  • Processes in a company are sequences of main and secondary activities.
  • Every business process needs a certain amount of time and binds a certain number of resources.
  • The goal is to reduce costs through processes optimisation.

Firstly, all processes that take place in the company are determined. These may be of course only repeating activities such as production, purchase orders, customer service etc., but not singular actions such as the planning of the annual Christmas party.

The aim for each repeat of the process is to reduce time taken/better resources allocation/reduce production costs and thus to create a sustainable (competitive) advantage.

Read my recent post on activity chain analysis – the power of in-depth review of business processes to gain competitive advantage Read more

Process costs

Let’s walk through an example that we all have to deal with on a daily basis: the treatment of spam emails and examine why such a trivial issue especially in the business arena can be of significance:

Employees: 20
Spam treatment per day: 3 minutes.
Lost working time: at least 200 hours per year

This example shows how a small ‘time waster’ per day over the entire year may amount to over one month salary. These costs are not direct production cost – but nevertheless have an impact on the productivity throughout the company.
Productivity could be increased for example by spam filters, so the time spent on spam email is ideally reduced to 0 minutes per day.

Soft process costs

The process cost calculation is ultimately only a model with each resource assigned a (cost) value.

In this example, the time is uniformly assessed and a simplification, but not too remote from reality. The biggest issue is that this time could be used productively – the bigger the company, the more you have this ‘wow’ effect.

This analytical process uses cold hard facts, however even greater productivity could be generated with ‘happier’ employees as they are able to focus more on value adding activities (compared to value detracting activities such as spam elimination). One danger of setting the spam bar too high is that important emails may also be filtered out.

The same applies to other, not always tangible activities such as smoko breaks – these may actually contribute to increased productivity and it could indeed be counter-productive if smoko breaks were eliminated or drastically reduced.

In summary – the process cost calculation is a very powerful tool to provide core data but we need to continue to ask questions what lies beneath – in any event the optimisation of processes and process costs go hand in hand and together form a powerful platform for potential benefits to bottom line profitability.

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