The true operating cost of accepting failure
 A week ago I was told that mis-selling was inevitable in financial services, and that as such processes had to be designed so that such errors were trapped after the event and dealt with. My challenge to that was that the process should be designed to minimise the risk of a mis-sale in the first place. It would be better for the customer to know that this particular firm had taken steps to ensure the right product was sold in the first place rather than there were measures in place to pick up the inevitable mistakes that would be made.
Aside from the cultural and brand ramifications of such an approach I started to think about the cost. I wondered if the financial impact of a mis-sold insurance policy or a poorly manufactured product was clearly understood. Compared to the cost of getting it right first time just what would the cost of fixing after the event be?
Quickly mind-mapping the problem starts to produce a massive variety of costs, some hidden, some not so. Intuitively most people would agree that the cost of reworking is a big one that stares everyone in the face. It costs me money to divert a person to redo the work that someone has done before them. I can measure that too, using an Activity Based Costing approach I can work out, pretty much to the penny, what it costs me. And to be honest this simple measure is what most businesses will use as a figure to justify retraining staff or reworking a process.
But hold on. Retraining staff? There's another cost straight away, and it isn't just the cost of putting someone back through sales training or widget making training. What about the cost of carrying out the analysis to determine what that training should be? And preparing the materials? And having to employ an extra trainer just to cover the retraining? Or the lost opportunity cost because the trainer is back filling skills rather than developing people forward?
We can also start to look at the lost revenues. If I have to take people off of the sales line to retrain or coach them to fix quality issues that's time they could be spending working through outbound sales lists, or answering inbound customer calls. How much business will I have lost if my team is down 2 or 3 people for an afternoon. And when they come back on stream they're going to be less productive as they rebuild their confidence and comfort. There can also be bigger impacts, such as commercial (B2B) sales teams who back off of closing certain deals or exploiting opportunities because their confidence in the ability of those who follow is lower than it should be. I have seen RFPs flash past the Sales Director's desks unanswered because they do not believe their own company can deliver on quality.
Which brings us into management costs. How much time is wasted investigating quality issues, or tracking trends or discussing how we can fix this or that failure rate? There is nothing wrong with looking at how we can make processes or working practices better, more efficient, more effective, but this should be about driving the business forwards, not trying to stand still and deliver what's been promised.
A friend of mine who used to work for NASA made the observation that spotting an error during design cost about $100 dollars to fix, but if it made it through the checks and was put into orbit on a satellite the cost of fixing the problem could be tens of millions of dollars. I wonder how many of us truly understand the amount of cost that we carry in our operations for fixing quality issues that would be better dealt with if they were engineered out of the business to start with.
Previously on this blog...
the global leader in Contact Center Consolidation 2.0
2.0 has become a meaningless addition to already poor tag lines.
A dozen beautiful images of Saturn
Wired presents a dozen of the best images from the Cassini mission
Setting up shop in a new country: beyond the website
Building a website for multiple languages is not just about translation. It is a critical business decision that has to be taken carefully.
Why call centre staff deserve your respect
If call centre staff set the first impression for your business, why do we treat them so badly?
Becoming a Specialist? A hard decision to make ...
Specialising requires hard strategic decisions to be made about your business.
When good people move on
Losing a member of staff to another company is not necessarily a bad thing
The quest for quality in Agile Software Development
Why quality assurance remains a central part of project management, regardless of the use of Agile methods
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