How to reduce hidden costs in a business

Key takeaways

To reduce hidden costs in a business, measure them, price them, and then work through four actions in order: stop, simplify, automate and reassign. Take one of the five hidden cost lines at a time. A 90-day plan focused on the largest line usually recovers more than a general efficiency drive.

• 4 actions in order: stop, simplify, automate, reassign.
• 90 days: 2 weeks to measure, 10 weeks to fix the largest line.
• Work on 1 hidden cost line at a time.
• Re-measure at the end, or the saving is only a belief.

Where do you start?

Start with measurement. Hidden costs cannot be cut until they are visible. Two weeks of time logging, a count of corrections and a list of what waits more than a day will show which of the five lines, focus, rework, delay, fragility or stack, is costing most.

• The hidden costs of doing everything in-house
• The hidden cost audit: score your business in an hour

What are the four actions?

Apply the four actions in order, because each is cheaper than the next.

• Stop: remove tasks nobody needs.
• Simplify: cut steps, add templates, set rules.
• Automate: connect systems for stable, high-volume work.
• Reassign: move what remains to the cheapest capable resource.

• A stop doing list for your business
• The cost of manual processes, and what to fix first

How do you fix each hidden cost line?

Each line has a typical fix.

• Focus: move routine work off senior people; protect blocks of time.
• Rework: write the process, add a check, measure errors per 100.
• Delay: add capacity or cover where queues form; set response targets.
• Fragility: document, train a deputy, arrange outside cover.
• Stack: build a software register, cancel duplicates, name an owner.

• The cost of undocumented processes
• Shadow IT in a small business: risks and fixes

What does a 90-day plan look like?

A 90-day plan keeps the work small enough to finish.

• Weeks 1 to 2: measure and score the five lines.
• Week 3: price the largest line and choose one process.
• Weeks 4 to 6: stop and simplify.
• Weeks 7 to 10: automate or reassign what remains.
• Weeks 11 to 12: re-measure and compare.
• Week 13: pick the next line.

• Delegate vs outsource: which should you choose?
• Run an outsourcing pilot before you commit

What should you not cut?

Do not cut prevention. Training, checking, documentation and backups look like overhead and are what keep the other hidden costs down. Cutting them reduces visible cost this quarter and raises hidden cost next year.

How much can you expect to recover?

It depends on where you start, but the first pass usually finds the most. Using the illustrative 12-person business with about £25,000 a year of hidden cost, a focused 90 days on the largest line might recover a third to a half of that line. The remainder takes longer, because it involves changing habits and systems. Treat any single-number promise with caution, and measure your own.

Who should lead it?

One person should lead, with authority to change how work is done. In a small business that is the owner or operations lead. They need two or three hours a week for the 90 days. If they do not have those hours, the first action is to free them, which is itself a hidden cost fix.

• Working in the business vs on it: the real cost

What does it look like in different sectors?

The lines are the same and the examples differ. In trades the largest line is usually the owner's evenings. In restaurants it is enquiries answered late. In clinics it is clinician time lost to the diary.

• Tradesman paperwork time: what the evenings cost
• Restaurant admin tasks: what they cost owners
• Clinicians doing admin: what it costs a private clinic

What mistakes derail a hidden cost programme?

Programmes fail for a few repeatable reasons.

• Trying to fix all five lines at once.
• Skipping measurement, so nobody can prove a result.
• Buying software before simplifying the process.
• Moving work to someone who is already full.
• Declaring success at week four and not re-measuring.

What does it cost to run the programme?

The programme itself costs time, and little else. Allow two or three hours a week from the person leading it and about half an hour a week from each team member during the measuring fortnight. For a 12-person business that is roughly 50 to 60 hours over the quarter, or about £1,200 to £1,500 at typical loaded rates. Against hidden costs measured in tens of thousands, the return is rarely in doubt, provided the changes are actually made.

What does this look like in practice?

A pattern we see in firms that try a general efficiency push: everyone is asked to be more productive, nothing specific changes, and after a month the old habits return. Firms that pick one process, measure it and fix it see a result they can repeat.

Across our client work, back-office cost per task has fallen by 42% once the process was written down and run by a managed team.

• See client work
• BPO Solutions for UK businesses

Hidden cost reduction checklist

Follow in order.

• Measure for two weeks.
• Score and price the five lines.
• Choose the largest line and one process.
• Stop, simplify, automate, reassign.
• Re-measure at 90 days.
• Repeat with the next line.

• How to run a cost review in a small business
• How to benchmark in-house team performance

Next step

Tell us which hidden cost line you think is largest. We will outline a 90-day plan for it in a 30-minute call.