Why Process Inefficiency is Expensive…

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…Sounds obvious, but it is more expensive than you know

Interestingly enough, the true cost of poor process is not in doing the process badly.  Clearly there is some cost there, but often it is the knock-on effect that the poor process has on other areas of the company, the downstream of the problem, which is the real cost multiplier. 

However, this is rarely calculated. If you have poorly documented and followed processes, you won’t even be able to identify the potential costs downstream—let alone measure them. (Note: processes must be documented AND followed to be valuable). So, like an iceberg, you only see a small part of the problem at surface level. Assuming an iceberg is a problem is looking at an iceberg from the Titanic’s rather than the penguin’s perspective.

Here is an example to illustrate my point: I received a letter a few days ago from HM Revenue & Customs, the UK equivalent of the IRS. A largish organisation with some 100,000 employees dotted all over the UK.

The letter explained in 7 wordy paragraphs:

-       During my online Tax Return on their website, I had checked the box “Do you want any over/under payment of tax adjusted via my tax code”.  I had said “Yes”.

-       As I had replied after 1 December, that check box should not have been available.  But it was.

-       As I had checked the box, could I please access their website and establish the phone number of my local tax office.

-       Could I also please call the tax office to confirm that I wanted any over/under tax adjusted.  


So, with a heavy heart, anticipating a long wait in a call centre queue for a non-valued added call, I followed their instructions:

-       I went to their website and needed to enter some tax information to be able to find the local tax office phone number—rather than just list the offices by county or city.

-       I called the tax office and followed the automated menu system and reached a human being, who was in a call centre in Scotland. 

-       The operator was polite, but asked me to redial the number and select a different menu option (which was not the obvious one), to get to the local office.

-       I called the number again and was eventually connected to my local tax office.

-       Again, a polite operator took me through slightly more security questions than my bank or credit card company ever does.

-       I was asked that confirm that I wanted any over/under tax adjusted.

-       She said that she would make a note of my request and send it through to the right person.

-       Finally, I mentioned this waste of everyone’s time to the operator who was equally exasperated and embarrassed about the HMRC processes.

How much of that wild goose chase was Value Added for me or HMRC? 

Answer: NONE.

Did the experience make me or the operators feel good about HMRC and the use of taxpayer’s money?

Answer: NO.

One small process error, due to a lack of business analysis before building the application, has resulted in:

-       A badly letter written, proof-read, printed, and sent to 10,000+ individuals;

-       A spike in hits on the website to get contact details and phone numbers;

-       Multiple phone calls to call centres and local offices; and

-       Back office processes to log and action my confirmation.

What were the alternatives? Presented in order of least to most effort exerted by me and by the HMRC office:

-       Conduct a detailed business analysis;

  • Effort – 15 mins

-       Have a robust test process for the original web-based application;

  • Effort – 1 hour

-       Accept the error and do nothing, but possibly fix a system calculation internally;

  • Effort – 4 hours

-       For additional confirmation, create a supplementary page on the HMRC website and reference the link in the letter for readers to use to access it;

  • Effort – 8 hours (website), 4 hours (letter), £15,000 (print and post x 10,000 letters), 1,666 hours (process the results assuming 10 mins per entry)

-       If creating a new webpage is too difficult, create a new website with a form filling app;

  • Effort – 16 hours (website), 4 hours (letter), £15,000 (print and post x 10,000 letters), 1,666 hours (process the results assuming 10 mins per entry)

-       If individual phone calls are essential, set up a dedicated phone number with an automated system; and

  • Effort – 24 hours (phone number system), 4 hours (letter), £15,000 (print and post x 10,000 letters), 1,666 hours (process the results assuming 10 mins per entry)

-       If they REALLY want me to call a local office, then create a letter with the correct phone numbers based off of readers city or county, eliminating effort on my part.

  • Effort – 24 hours (phone number), 4 hours (letter), £15,000 (print and post x 10,000 letters), 833 hours (answering calls to call centre), 1,666 hours (process the results assuming 10 mins per entry)

Assuming a cost of £10,000 and an average of 200 work-days per year, the loaded cost is £50 per day. Making the original process cost of £6.88 vs the option HMRC selected which is £32,345.62

This shows how small process issues can cause internal problems, which result in a convoluted, wasteful, and ill thought-through process needed to correct them.

The people best placed to identify the problems and recommend the best solutions are those at the sharp end, on the shop floor, at the grass roots—the ones who are the lowest paid employees in the company.


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