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The Real Cost of Operational Inefficiency



There is a good chance you are leaving money on the table every day due to operational inefficiency. Many business owners spend so much of their time looking for the next lead, the next project, or the next sale that they seldom stop to assess the efficiency of their current business practices. You may not realize how much money could be recouped simply by addressing simple things within your current business practices. While it may not seem like a lot, when you start really looking into the different areas of your business and assessing effort lost in terms of time and money you will be surprised at how quickly it adds up.


The good news is seeing an uptick in your bottom line might be easier than you thought. Here are four simple ways to look around your organization for unnecessary costs and get them back into the revenue column.


1 | Pushing vs Pulling Information


As I progressed through Army Officer Candidate School as an officer candidate, one thing that was drilled into us as leaders was the question, “What do you know that your lowest ranking soldier needs to know?” If I know the mission but am not communicating it, no one is preparing, and the mission is effectively stalled.


The same is true in business. Leaders in your business need to be in the habit of pushing information out to all who need to know, not waiting for that information to be pulled from them in the form of questions or meetings. If an email is sitting in your inbox with a question waiting to be answered, what is the status of progress on the project/sale in question? That potential revenue is stalled while the hours tick by waiting for response. While this may not seem like much, when you take this instance and multiply it by number of employees and number of interactions per day you can quickly see the opportunity cost of reactive communication add up. While immediate response is not always realistic, getting in the habit of keeping the communication chain moving will keep current sales and projects moving and open up time to add more to that sales or project funnel and, in turn, more to your revenue column.


2 | Lack of Feedback


Another costly communication oversight is a lack of consistent feedback. Feedback is important in all areas but is critical in the negative space of business – mistakes, warranties, and customer issues. When a feedback loop is not established, individual errors quickly develop into patterns that cost the company money – both in opportunity lost and the real cost of addressing the issue.


For instance, if your sales representative is not getting the correct information to those in production and then production either produces the wrong thing or takes three times as long to produce the right thing due to the lack of clarity, who is ultimately responsible to identify this gap? Is it the sales manager? The production manager? How about the technician responsible for actually creating the product? What happens if it is not addressed? Too often these kinds of information gaps are not even identified, let alone addressed, and costly errors are repeatedly made costing hundreds and thousands of dollars unnecessarily. This is a problem that is easily fixed by developing the discipline of consistent feedback at all levels of your organization and watching your warranty costs go down as your revenue goes up.


3 | Lack of Clear Goals, Objectives, and Responsibilities


Clarity is a money-maker. Most human beings do not prefer to operate in the haze of constant change or uncertainty. We naturally gravitate toward order and predictability. When we cannot find it, we tend to quickly lose focus and motivation. If your employees are not confident they know what your expectations are of them, how can they operate at peak performance?


A quick, informal assessment can help you determine the level of clarity in your organization. Do your employees have written job descriptions outlining their goals and objectives? Are these job descriptions current and comprehensive? Do your employees have relevant job titles? Do they know who they report to? These may seem like small issues, but you would likely be surprised at the amount of time that is wasted each day as employees discuss amongst themselves who should be doing what and who is or isn’t their boss. However, ensuring that your people know what to do, as well as the value they bring to your organization, can quickly eliminate this unnecessary cost and send your revenue arrow back into a northerly direction.


4 | Redundant Processes


Full disclosure – I’m a big believer in the power of necessary systems and processes to synthesize human effort. However, the operative word is “necessary”. Process for its own sake defeats the purpose and stifles human ingenuity. Processes that are redundant are not only demotivating but actually cost your company money. When was the last time you analyzed the key processes in your business? Are they relevant? Are they necessary? What would happen if you eliminated them? Anything?


Processes that are necessary are a force multiplier. They make work easier and more effective, and they make your employees’ efforts equal to more than the sum of their parts. However, processes that are not essential cost you money in time, de-motivated employees, and paying managers to hold them accountable for implementing processes no one believes in. If you haven’t checked this out in a while, a process audit could be in order to save you money and make your people much happier along the way.


Conclusions


This is by no means a comprehensive list but is an easy place to start addressing the opportunity cost of inefficiency. Proactive communication, established feedback loops, clarity regarding goals, objectives, and responsibilities, and eliminating redundant processes will go a long way toward converting operating costs into additional revenue.

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