costs and benefits of business improvment

 

How do you measure costs and benefits of business improvement?

I’ve asked this question to many leaders and teams over the years. Some of the replies I get are “How long is a piece of string?” and “This has slipped well down the list, I’m afraid”. I’m sure many of you are familiar with this type of response.

In this article, I’m sharing my experience on skilling people to measure costs and benefits of improvement activity. I’ve developed a simple approach so Leaders, managers and teams clearly understand how they contribute to high level results. And here’s why it’s important.

  • To justify the initial investment in business improvement training
  • To understand the scale and priorities for improvement
  • To engage people in a common focus
  • To inspire people to take ownership of business improvement tools and principles.

I’ve been interested in costs and benefits of improvement activity since researching and recommending how the EFQM (Business Excellence) model could be used in a more business focussed way. As an internal consultant in a large government administration, I set up cost benefit pilots across the UK, to inform my EFQM research.

I discovered that the cost of continuous improvement activity like EFQM assessments, and Suggestion Schemes ran into millions. Yet there was no link to improvements or savings at team or higher level. So it wasn’t clear which of these initiatives, if any, were producing efficiencies and savings.

One of my cost benefit pilots was a customer complaints team in the Midlands. They had to respond within a set timeframe, and this was the only measure of their performance. EFQM assessments had not identified opportunities for process improvement.

For the pilot, they worked out how many hours the team currently spent answering complaints. This was converted to an overall cost using average salary rates. They used Pareto principles to establish the two major complaint categories – one service and one compliance issue. With support they identified the root causes of these complaints. The service issue was due to inadequately worded standard letters. The letters were rewritten, and the over time, the team witnessed the level of these complaints fall significantly. The compliance issue was similarly resolved through root cause analysis.

After 4 months, the Complaints team recalculated the new resource cost of the team. This had reduced significantly. They calculated other savings including reduced level of compensation awards. And they costed the time taken to learn new skills. This data enabled them to project the overall return on the investment would be 22:1 if these two improvements were introduced across the organisation.

So, the team saw a direct costed benefit from investing in improvement activity. They also experienced several spin-off benefits:

  • business leaders take ownership of improvement activity, so external funding reduces
  • team members return to core, value-adding work
  • improved service promotes positive customer behaviours and adherence to requirements

If you’d like further information or wish to discuss, please get in touch via info@losethebox.co.uk or 07824 660120

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