An order waits two days to be retyped into the system. An invoice goes out a week after the goods have shipped, because someone has to gather data from three spreadsheets. The board can see that work is stuck. The monthly report has no line for it. The cost of manual work dissolves into salaries, into receivables that come in later and into complaints. Below is a way to calculate that cost in a single day, using data the company already has.
Where the cost the report does not show comes from
The report shows costs by account: salaries, external services, materials. A process cuts across those accounts. The time a salesperson spends retyping an order from a message into the system is booked as salary. The late invoice sits in receivables. A mistake in a client's address ends up in complaints or in the cost of reshipping. Each of these items looks normal on its own. Only when they are added up along a single process do they show how much the company pays for having people carry data between systems.
The four components of the cost of manual work
People's time
The number of operations a month, multiplied by the time of one operation in hours and by the hourly rate including overheads. An operation is one retyping, one check, one file sent. The rate including overheads is the employer's full cost (gross salary with social contributions and benefits) divided by the hours worked in the month.
The cost of errors
The number of operations a month, multiplied by the share of operations with a mistake and by the cost of fixing one mistake. A fix means the time to find and correct the error, a corrected invoice, reshipping, sometimes a discount.
The cost of waiting
The days a case waits, multiplied by the daily cost of whatever waits with it. An invoice not issued for a week is a receivable paid a week later, financed from the company's own funds in the meantime. An order not fulfilled for three days is stock that sits in the warehouse for three days, plus the risk that the client buys elsewhere.
The cost of depending on one person
A manual process lives in the heads of one or two people. They know the order of the steps, the exceptions and whom to send the file to when the system rejects an entry. When such a person leaves or goes on extended sick leave, the process slows or stops until a successor learns the path. This cost is calculated as the cost of cover and downtime, multiplied by the probability that the departure happens within the year.
How to calculate it in one day with your own people
The data sits in three places. The head of the department knows how many operations pass through the process and how long one takes. The systems (sales, accounting, email, spreadsheet) hold dates: when a case came in and when it went out. HR has the employer's full cost per position.
Checklist:
- One process, from the event that triggers it to the result: for example, from the message with an order to the issued invoice.
- The number of operations a month: from the system, or from a week's count multiplied by four.
- Minutes per operation: the head of department times five cases and takes the average.
- The full cost of an hour's work for the people in the process: from HR.
- The error rate and the cost of fixing one error: from corrections and complaints in the last quarter.
- The average time from a case coming in to going out: from the dates in the system; separately, the part in which the case is waiting.
- What waits along with the case and what each day costs: a receivable, stock, a promise made to the client.
- Who knows the whole path of the process: how many people, and whether it is written down anywhere.
A worked example on assumed data
Assume a company takes 1,200 orders a month, each retyped by hand from a message into the sales system. Assume further: 12 minutes per order, a full cost of PLN 70 per hour of work, 4 per cent of orders with a mistake, and fixing one mistake taking 45 minutes of work plus PLN 80 for reshipping. Add two days' wait for the invoice to be issued, an average invoice of PLN 5,000 and a cost of financing receivables of 10 per cent a year. All the figures are assumed for the purposes of the example.
- People's time: 1,200 × 12 minutes is 240 hours a month; 240 × PLN 70 is PLN 16,800 a month, PLN 201,600 a year.
- The cost of errors: 4 per cent of 1,200 is 48 mistakes; fixing one is PLN 52.50 of work and PLN 80 of shipping, PLN 132.50 in total; 48 × PLN 132.50 is PLN 6,360 a month, PLN 76,320 a year.
- The cost of waiting: PLN 5,000 × 10 per cent × 2/365 is about PLN 2.74 per invoice; at 1,200 invoices, about PLN 3,300 a month and about PLN 39,500 a year, without pricing the risk that the client leaves.
- Dependence on one person: assume one person knows the path and the probability of that person leaving within the year is 20 per cent. Replacing them means a month of double work in the process (PLN 16,800) and a month of delays of similar value; 20 per cent of PLN 33,600 is about PLN 6,700 a year.
In total, about PLN 324,000 a year in one process, on assumptions that can be changed in the spreadsheet. Every component has a source and can be checked with the head of department.
What to do with the annual figure
The annual figure is set against the cost of change. Change takes one of three routes. The first is putting the process in order: the same work in a different sequence, with one person responsible for the whole and without entering anything twice. The second is connecting the systems already in use: data moves on its own and people check the exceptions. The third is automation: a program or an artificial intelligence model performs the operation and a person approves the result. Each has a different price, implementation time and risk. Only setting the annual cost against the price of each shows which one pays off, and after how many months. Without this calculation, both the decision to spend and the decision to leave the process as it is are guesswork.
The spreadsheet shows the scale of the problem. Choosing a route also requires writing down the steps of the process and looking at the systems from the inside: the process analysis with which our work together begins.