The Hidden Costs of Gettin’ It Wrong

©2016 Mark Henderson

I had a recent meeting with a potential client, and one of the topics we discussed was the oftentimes grossly underestimated—or even completely UN-estimated—costs of equipment and machines “going down”. While the subject wasn’t integral to our decision to collaborate on his project, what struck me was the fact the he got it. He understood the unknown or hidden costs of unplanned outages of productivity-critical equipment and machines.

costs of downtimeOn the flip side, I can’t tell you how many people I encounter in my “professional nomad” career, zig-zagging across various industry sectors, who just don’t appreciate the true costs of stuff failing to do what they need done to make a buck.

As an example, let me cite one I read about some time back:  There was a company that made something we’ll cliché-call “widgets”. Now, their widgets came in differing configurations (e.g. size, color, strength), but all were prepped for and shipped from a single point in the plant. The reason for this was that the machine they used to mark, crate, and ship each order of various widgets was a very expensive machine at the very end of the production lines and bins conveniently located for easy loading. Like any other machine on this planet, their machine experienced downtime—planned (i.e. periodic maintenance) and unplanned (i.e. repairs). What was interesting was that their cost-per-minute for downtime was based on some simplistic formula like gross daily sales ÷ 24 hrs. ÷ 60 min. or something similar. The problem was (and pay attention, because herein lies the heart of this issue), this simplistic formula failed to account for the sea of people who were costing salary (not to mention all the other costs to keep the lights on) during a periods of time when zero revenue was being generated! When their choke-point machine was down, no product was being shipped, no sales orders were being filled, and no invoices were being sent. In other words—to paraphrase an old saying—“The lights were on, but no-money’s home”.

When the previously hidden costs became known, and a more realistic and accurate (a.k.a. real) downtime cost-per-minute value was determined, it became a corporate “state of emergency” and this company invested heavily to procure a second machine and build all the supporting infrastructure required to have a complete parallel load-ship system so that at least one line was up and shipping at all times. And this was no cheap or easy fix, but I understood that the company calculated a positive ROI within the first six months!

Certainly not all hidden costs of gettin’ it wrong are this lopsided (my own euphemism for ridiculously costly). However, back to my original observation:  Few professionals take the time to truly identify, understand, and calculate the real costs of downtime or error. If they did, I am certain more decision-makers would place a much higher value—dare I say “corporate state of emergency” value?—on developing and maintaining clearer documents, records, and data to try to make sure that everyone responsible for producing or doing whatever it is they produce or do for revenue is done productively and is done right. It’s those hidden costs of gettin’ it wrong that need to be fleshed out in order for a business to make sound business decisions whether to invest in the documentation to make sure that everyone gets it right.