Stage 2 · Analyse · 05 · 25 min
Quantify and rank the improvements
Every issue on the register costs money. Most teams never find out how much, so they fix the loudest one.
This module puts a price on each issue, finds the few that matter most, ranks the improvement ideas with agreed criteria and ends with a signed charter: baseline, targets and scope.
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1. Put a price on each issue
What you do here: turn each issue into a yearly cost.
The formula is simple: how often it happens × what one occurrence costs, in time × rate or in money spent. A quarter has four in a year.
Volumes and unit costs from the ERP, the quality system and Finance.
| Issue | Per quarter | Cost of one occurrence | Per year |
|---|---|---|---|
| Failed inspection, part remade | 27 orders | EUR 2,300 (remake, material, re-inspection) | ? |
| Order shipped late | 76 orders | EUR 380 (express freight, penalties) | ? |
| Order retyped from CRM into ERP | 180 orders, 7 errors | 20 min at EUR 50/h; EUR 400 per error | EUR 23,200 |
| Capacity planned in a spreadsheet | 13 weeks | 6 h a week at EUR 55/h | EUR 17,160 |
| Customers chase order status | 412 enquiries | 9 min at EUR 60/h | ? |
What do failed inspections cost a year, in EUR?
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2. Find the few that matter
What you do here: rank the issues by cost and work out the cost of poor quality.
A Pareto view sorts issues by impact. In most processes a few issues carry most of the cost. The cost of poor quality adds up what failure costs: work done twice inside the company, and failures that reach the customer.
The priced register, sorted.
| Issue | Per year | Type of cost |
|---|---|---|
| Failed final inspection, part remade | EUR 248,400 | Internal failure |
| Orders shipped late | EUR 115,520 | External failure |
| Order retyped from CRM into ERP | EUR 23,200 | Waste |
| Capacity planned in a private spreadsheet | EUR 17,160 | Waste |
| Customers chase order status | EUR 14,832 | Waste |
What share of the total do the top two issues carry, in percent?
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3. Rank the improvement ideas
What you do here: score the ideas against criteria agreed before anyone picks a favourite.
The leadership team agreed five criteria and their weights first: savings 30 %, quality 25 %, customer impact 25 %, ease 10 %, low risk 10 %. Then each idea was scored 1 to 5. Agreeing the weights first stops people from reverse-engineering their favourite answer.
Scores 1 to 5; higher is better on every criterion. Weights: savings 0.30, quality 0.25, customer 0.25, ease 0.10, low risk 0.10.
| Idea | Savings | Quality | Customer | Ease | Low risk | Score |
|---|---|---|---|---|---|---|
| Check the drawing revision before production starts | 5 | 5 | 4 | 4 | 5 | 4.65 |
| Triage custom orders at entry: small variants get a fast lane | 4 | 2 | 5 | 4 | 4 | ? |
| Integrate CRM and ERP | 2 | 3 | 2 | 3 | 4 | 2.55 |
| Tell customers proactively where their order is | 1 | 1 | 4 | 5 | 5 | 2.55 |
| Replace the ERP | 2 | 2 | 2 | 1 | 1 | 1.80 |
| AI chatbot on the website | 1 | 1 | 2 | 3 | 2 | 1.55 |
What does triage score?
Two ideas lead: the revision check removes the most expensive issue, triage removes the queue that makes orders late. Both go into the project. The others wait on the backlog.
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4. Set the targets
What you do here: pick one KPI per dimension and set a target against its baseline.
A target needs a baseline and a believable step. Include at least one leading indicator: a number that moves before the outcome does.
Pick one KPI per dimension and set its target.
Time
Early warning
Reliability
Quality
Cost
Satisfaction
After discussion, the managing director signs the charter with these targets:
| KPI | Baseline | Target |
|---|---|---|
| Median lead time, quote to invoice | 28 days | 21 days |
| Shipped by the promised date | 58 % | 85 % |
| First-pass yield | 85 % | 92 % |
| Process cost per order | EUR 1,240 | EUR 1,050 |
| Customer score | 3.4 | 4 |
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5. Write the charter
What you do here: check what a charter needs before the project starts.
The charter fits on one page: the problem in numbers, scope, the targets above, the expected benefit, the sponsor and the process owner. It is the contract the project is judged by in module 8.
The draft scope says: "Improve order processing." What is wrong?
Signed: process, scope, baseline, targets, benefit, sponsor and owner. Now the redesign can start.
Reflect
Check your understanding
Three questions on the module.
120 enquiries a month take 15 minutes each at EUR 48 an hour. What do they cost a year?
Take away
What to keep
- Price each issue: how often × what one occurrence costs, per year.
- A few issues carry most of the cost. Start there.
- Agree criteria and weights before scoring ideas.
- Watch for double counting and for savings that just move the bottleneck.
- A charter has baseline, target, scope, sponsor and process owner.
After this module you can
- Price issues per year from volume, time and cost rates
- Find the few issues behind most of the cost, including the cost of poor quality
- Rank ideas with criteria and weights agreed upfront
- Avoid double counting and savings that move the bottleneck
- Set targets and write a charter