How To Estimate How Much Cash a Process is Leaking

The simplest tasks at high volume become ridiculously complex.

Compute the commission on a few sales transactions is stubby pencil work.  Try running a commissions payroll for 19,000 sales people selling hundreds of items, each with its own commission schedule because marketing wants to incentivize the sales force?  Best swap pencils for an Oracle or Teradata platform.  Which is what a company I triaged a few years ago did over a decade of solid growth.  Did I say it was hemorrhaging cash?  It had to process over a million point-of-sale records per month and was creating over a net 100% paycheck errors.

So we know a process at some volume will need oversight and end-to-end monitoring.  When should we think about biting the bullet and buying some dedicated process metering and management?  Some continuous process improvement?

Here’s a simple calculation to indicate when you need to deliberately manage a process and put it into a state of continuous improvement.

Step 1: name the process and set its boundaries, from what triggers it to its final work products:

  • Manufacturing from Factory Order Received to Installed and Accepted.
  • Loan Processing from Loan Submitted for Processing to Cleared for Close
  • Site Construction from Design Finalized to  Client Accepted

Step 2: Estimate how much cash this process is consuming per month.  Include direct and indirect costs, such as labor and floor space rents.  For labor, use a loaded labor rate, which is base salary + 20% (for benefits and some office automation).   Round it to the nearest $5K — just ball park it.   If the process generates revenue, add the average monthly revenue (before accounting adjustments) on top of the expense amount.

Step 3: Consider how capable  this process is, in terms of how well it runs.  Is there a lot of rework or rejects?  Is there a lot of employee turn over?  If this process is not running effectively and efficiently — whatever those terms mean in your context, then what percent (%)  is it under-performing?  10%?  15%?  35%?  A SWAG (Scientific Wild Arse Guess) is okay, but be conservative.

Step 4: Multiply the amount of monthly spend (from the second step) by the previous percentage.  That’s how much cash your process might be bleeding monthly. So multiply that number by 3 to see how much you’re spilling per calendar quarter.

For example, a $2,000,000/month process that is 15% not capable enough suggests $300,000 x 3 = $9ooK could be put to other use if we could see and stop the leakage.

So now you know if you need to buy some deliberate process management — if your estimate of the process’s capability shortfall is greater than the cost to make it capable. 

The ability to not spill this$300K/month (insert your cash amount here) will cost two things:

  • The cost to know what the best capability improvements might be — the Cost of the Improvements List, and
  • The cost of improvements on the list your team cannot get to, taking nothing else off their plate — the Cost of Not Yet’s.

Our flagship service, the Process Triage Immersion Workshop, generates this list of typically 20 improvement proposals that:

  • Have the  absolute buy-in by the producer / performer experts that must implement and live with these improvements AND…
  • Will improve the process’s capability (speed, use of cash, work product quality, scalable volume, better cross-silo work flow, etc.). AND…
  • Thereby better deliver the process’s share of your overall financial goals, AND…
  • Will specifically consider the impacts to your customer’s experience and your (CEO’s) bottom-line impact, AND…
  • Based on a completed staff work recommendation by the manager I choose, be achievable in the next 90 days, or have a price tag for what can’ be delivered that fast, AND…
  • It will only pull my best expert producers off the line for only one day, as a team, to deliver this raw, unassigned and unscheduled list for my manager to analyze and submit in an execution plan with10 days afterward, AND…
  • The immersion experience of producing this first list is absolutely repeatable if I need this team to refresh the list with minimal, optional outside facilitation.

So the kind of list we’re talking about is not your grandpa’s Suggestion Box, or organization survey.  Our Process Triage Immersion Workshop produces this list with your own process experts in ONE DAY of their time (and about three days of our certified facilitator’s effort).

What would you pay for this ProcessTriage quality list?

You will continue to bleed this much cash, monthly,  until you do something about it.

The Self-Healing Business Process

One way we understand something new and different is by comparing it with something we understand.  We start with an analogy or metaphor. ProcessTriage® , our trademarked brand wonderfully captures the idea of applying the structured but rapid medical examination process of battlefield or mass casualty events, to business processes. It also reflects how fast our methods identify what to fix first, as our clients have observed.

I am blessed to be invited to introduce process triaging to Vistage member groups, typically 12 to 18 CEO’s of growing companies.  After reviewing each step of the Process Triage Decision Cycle, from the start point of the CEO setting the strategic financial goal to finally monitoring and celebrating the completed process improvements, I usually conclude with by saying something like, ‘Now rinse and repeat.”

Each cycle of the decision cycle nominates a fresh, focused, and prioritized list of improvements based on new information.

One of the members observed, ‘Rosey, what you’re saying is this decision cycle creates a self-healing business process.  That no matter what new thing inhibits the process’s capability, the decision cycle exposes and diagnoses it.”

After sleeping on it, I woke up wondering, ‘Why hadn’t I seen this before?”  Sustaining the cycle makes the process it is applied to self-healing.  Like a self-sealing fuel tank.

Pitch perfect, indeed. It does.

How Process Triaging Finds Potential Managers

A common challenge CEO’s have is finding and growing middle managers.  While that’s true in most growing enterprises, it’s notably hard for CEO’s who started their companies without having any experience at developing managers.  Oh, they’ve hired producers — individual contributors for specific jobs; the more frequent kind of hires, but not process managers.  

During yesterday’s triage workshop with a terrific company, Redemption Plus, one of the triagers primary jobs was fulfilling customer orders in the warehouse.  Pull and order, assign it to a warehouse person, pick and pack the order and ship it out (to oversimplify the process).  Hundreds of times a day.  What made this triage unique was the appearance of a triager — a front line producer / process task expert, who was ripe for a manager opportunity.

Some background first: Leaders must be able to sing in three voices to lead high performing processes (summary here), the Executive, the Process Manager, and the Producer.  The heavy lifting work in the Process Triage Decision Cycle is borne by the Producer; they define the process, observe its Points-of-Pain that inhibit its ability to perform, and nominate the solutions to these pain points.  The Process Manager bundles the constantly refreshing list of improvement solutions into a rolling 90+ day plan and brings discipline and oversight to that scarce, but highly leveraged Working ON it, not IN it (as Michael Gerber coined it) space.

Facilitating a team through a series of tasks is managing, albeit a microcosm of it. So to confirm my suspicion, I invited this triager to assist me in leading the triage team through one of the tasks — one he had observed a previous triage team perform.

And you know it with you see it.

And we saw it.

He can do it — it’s just so obvious.

So now we pile on and invite him to write the first draft of this triage’s 90+ Day Process Capability Improvement Plan.

LESSON LEARNED:

  • Confirm a candidate managers’s potential by having them host (i.e. project manage) a ProcessTriage immersion workshop.
  • When conducting an immersion workshop, look for producers (the triagers) who can sing process manager notes pitch-perfectly.

When to Brainstorm With The Boss…. Or Not.

Sometimes I reach out to one of my subject matter experts for his thoughts, like I did earlier today.  And I ended up practically hanging up on him when he started ‘thinking out loud’ about my question.  I didn’t mean to be rude — after all, I did ask for his opinion.  Yet I heard myself admonishing him “Hold on… you’re letting the air out of the balloon. Stop.

In hindsight, I realized what happened.  I was in the Executive Voice, wanting something done. And having absolute confidence that who I was asking to do it, could do it — delegating it, I was already moving on to the next item on my day’s punch list.

(For anyone new to Process Triaging, here’s the primer on The Three Voices of High Performing Teams — who sings what notes in high performing teams that create high performing business processes that deliver strategic objectives.)

Let’s call my subject matter expert Joe.  Joe, wanting to please, did not realize I was in Executive Voice, meaning I was thinking about either my company’s Brand, Business Model, or Balance Sheet.  In fact, the question was really about how I could leverage my company’s flagship product with another product — one Joe is a go-to expert.   So I was talking to someone who I placed into Producer Voice; and unconsciously expected only Completed Staff Work — run with it and get back to me with a finished, ready-to-implement proposal.

And, more importantly, I wasn’t clear with my signals with Joe.  I should have been more explicit, and not asked an open-ended question, “Joe, do you think there is a link between PT’s ‘X’ and (your knowledge of) ‘Y’?  And to exacerbate my error, I need to be very careful about appearing to task someone who doesn’t work for me.  We have to purchase the right or be granted the authority to task other human beings (having settled that with the 13th Amendment to our Constitution, but I digress).

When Joe tells me what he really  thinks — it will be completed staff work, and I’ll compensate him for it, no doubt.

But what happened was blog fodder.

When you’re asked for you opinion — weigh the moment.  If the question is about the Brand, Business Model, or Balance Sheet — you’re talking to the Executive Voice — and a complete, fully-formed answer may lead to an investment decision. Don’t settle for just comparing notes.

 

Are You Hearing Voices?

High performing teams that create high performing businesses are a lot like a choir.

Each member sings their part while listening and harmonizing with other parts — basses with baritones and tenors and sopranos.   A culture of continuous business process improvement requires three voices — leadership voices.

Here’s a link to an article in Thinking Bigger magazine (here)  on the three voices high performing teams, the Executive, the Process Manager, and the Producer.  All three voices are in our heads, but only one of them should be singing at a time.

Cheers,

Rosey