Over the weekend I had the pleasure of facilitating a program for a landscaping company looking to improve their efficiency.
One of the exercises we did focused on calculating the costs of inefficiency.
Here’s how it worked.
Working in small groups the team identified instances that occurred during the past year where things were done in a inefficient manner. They then listed the people impacted and any other resources that were involved.
From there they calculated the costs in terms of time, money, and other factors that they felt were important. It was a quick, simple exercise, and the results were revealing.
In just 15 minutes the six teams identified 6 instances from the past 12 months that totaled a loss of over $95,000 in the past year as a result of small inefficiencies in the way they were doing things. And that doesn’t count the increased frustration levels that resulted from these situations being tolerated, or the impacts on their customers who were impacted by these situations.
So what does all this mean for your credit union?
It’s time to do the math and take a hard look at the impacts of inefficiency in your operations. With returns being squeezed from all sides, anything you can do to reduce costs and improve performance is worth doing.
Here’s a simple way to get started.
1. Identify situations where things have occurred that were not done as efficiently as they might have been. Possibilities might include times when decisions that were not made at the level where they should have been that instead were elevated and involved more people than necessary; times when people in a meeting waited to begin while others showed up late; or times when an untrained employee required assistance and had to interrupt a manager to solve a problem they could easily have solved themselves if they had been properly trained and empowered.
2. Estimate the time lost in dealing with the situation you have identified; also list any other impacts that might have been created, such as increased customer wait times, employee frustration, and so forth.
3. Calculate the hourly salaries of the people who were involved and sum up the total per hour cost, then multiply by the number of hours lost due to this situation to identify the total cost per occurrence.
4. Estimate the number of times the occurrence happened in the last 12 months and multiply that by the total cost per occurrence to get the total cost to your credit union from this particular inefficiency.
5. Repeat the process for other inefficiencies that are occurring during the year.
6. Define an action plan to eliminate these inefficiencies and gain the associated cost savings in 2010 (and beyond).
