Category Archives: Financial Management

the high cost of errors

The High Costs of Errors

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It just happened again. Different company this time. A package was delivered to my door, but it wasn’t for me. And I wasn’t even sure of the location of the house. It wasn’t close by. Upon reaching out, the company told me to keep it or donate it. So it went in the donation pile for the next time I make a drop off.  The people are always nice through the process. But, it’s clear that the cost of picking up the package and returning it or redelivering it is more than just sending a new one. Errors are costly.

Some companies keep a close eye on errors and try to reduce them. But many companies don’t. And the cost gets buried in cost of sales. Whether it is rework for a services business, manufacturing errors, damage in shipping or shipping to the wrong place, those errors can add up fast. If you don’t already, why not keep track of error rates and work on getting them down.

are you investing?

Are you investing right now?

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Last week, the county put a slurry coat on all the streets in the area where I live. The county knows that the cost of the slurry coat is minimal compared to replacing the roads if routine maintenance does not occur. And they chose to invest in maintenance even in the midst of a pandemic.

That got me to thinking about how I’ve seen businesses taking very different approaches to investing over the last four months. Many are investing and reaping the rewards. Some aren’t but need to. Are you investing in your business?

are you measuring the right things

Are your metrics the right ones?

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The departure to Boston was delayed by a bad weather system passing through the Boston area. Not much the airline can do about it. The FAA made the call. After some time, we boarded the plane, the door shut and the jet bridge was pulled back. We were on the way!  Or so I thought.

The captain came on and said we hadn’t been cleared for take-off, but he was going to taxi out a bit, hoping an earlier departure would come through. And that’s when I looked at the flight tracking to see the departure time was recorded when the door shut and the jet bridge pulled back.

For the airline, that was the part they could control. But as a customer, I don’t care who is controlling the issue. Late is late.

That’s the thing about metrics. It is easy to have metrics that show you are doing well. But if your metrics aren’t showing the whole picture, you are just fooling yourself! Have you checked in on your metrics lately? Are they accurately showing what is going on in your business? If not, it is time to rethink what you are measuring.

change isn't always good

Are you making business decisions based on cost or do you take into account the impact on your people?

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Have you noticed all of the cranes around? It is hard not to these days. Construction is booming and buildings are being completed at a rapid pace. When the buildings are completed, businesses move in. And rents go up. So, some businesses move farther out to lower cost. And for all of the moves, the impact on the people working for the business is not normally considered.

People working in the business may have to drive farther. The business conditions may change from a vibrant business community to a non-descript business park. Or maybe the business moves into a busy downtown building from a lower key building. The changes impact the people that work there. And rarely are the working conditions considered when making the move.

When you make changes in your business, do you consider how it will impact your people? If not, why not?

how to piss your customers off for $40 per day

How to piss off your customers for $40 per day

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A business took away something highly valued by its customers in attempting to balance the budget. Customers were pissed off and barraged the business with comments about the change. The front line employees got an earful all day for weeks. All to save $40 per day.

When you lose sight of your customers over small dollar amounts to balance a budget, you have bigger problems. Don’t get me wrong, running a business requires balancing customer preferences and the cost of doing business. But taking away something your customers value will get you in trouble every time.

are you measuring the right things

Are you looking at the wrong metrics?

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A few months ago, my iPhone started showing a weekly screen time report. It pops up every weekend and shows how many minutes were spent on various apps. It was a wild swing that got me to look at the report. I turned on gps and a podcast for my journey. For a one hour trip, I racked up 2 hours of screen time (1 hour for each app).

That experience got me thinking about how misleading metrics can be. The point of this particular one is to get you to spend less time on the apps. But the duplicative nature of counting screen time and the inclusion of things like the gps app make the metrics misleading. So, I end up ignoring the report.

How often do you find you are ignoring metrics in your business? Metrics that aren’t measuring things the right way? If you find things are not working well with your metrics, fix them. Don’t ignore them. When you get it right, your metrics will give you insight into your business.

the race to spend money

The race to spend money

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The end of the year is quickly approaching. And that signals department heads to hurry up and spend money. Use it or lose it. The phenomenon is rooted in ineffective budgeting processes. The budget for next year is based on actual spending this year plus an inflationary factor. And that drives department heads to race to spend money, many times ineffectively, to make sure they have what they believe they need for next year.

Rather than a race to spend money indiscriminately, why not make your budget reflective of your priorities? By building your priorities into your budget, you will be able to track progress. Did you do what you said you would do? Did it generate the results you expected?

You’ll find being deliberate and ending the race to spend money will drive you to make progress against your goals.

Check out my new book, Leading the High-Performing Company. You’ll find more tips about how to lead your organization to new heights.

the sunk cost dilemma

The Sunk Cost Dilemma

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Last week I called “customer service” to resolve an a billing error. It should have been a very simple fix. I thought I’d be on the phone for no more than 10 minutes. An hour later and 4people, the issue was resolved, kind of. I was mad I wasted an hour of time on such a small issue. Once I was on the phone, I didn’t want to hang up as I was transferred from person to person. I had already invested a lot of time. Surely, the issue would be resolved in a few minutes. It was the classic sunk cost dilemma.

In business, we keep investing in products, services, capital, facilities, etc. because we think it will just take a little more time and money to achieve the results we want. But sometimes continued investment is not worth it. There comes a point when you are just throwing good money after bad. That is when you need to recognize the costs are sunk and should not be the reason to continue investing.

Do you have a method for evaluating whether continued investment is warranted? How do you get out of the sunk cost dilemma?

are sunk costs impacting your decision making

Are sunk costs impacting your decision making?

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Years ago, a customer of a company I worked for halted their capital spending program. The entire program, no matter how far along the construction was. Some facilities were more than 80% complete. And the amount of capital spent was in the billions. The market collapsed and no longer supported new capacity coming online. So they just stopped.

It was an amazing decision. But it was the right one for them. From that point on, they would have been throwing good money after bad. It takes guts to walk away from that much invested capital. But it was a sunk cost.

Whether it is time or money spent, once the resource is spent it is a sunk cost. Sunk costs are anchors that drive bad decisions. How often do sunk costs impact your decision making?

A business is worth exponentially more when it is run well

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well run business is worth exponentially moreRunning your business well isn’t just for show. A business is worth exponentially more when it is well run. The math bears this out. An example of the same business, pre- and post-transformation based on a real business transformation:

  • Pre: $10MM EBITDA x 3 multiple = $30MM value
  • Post: $30MM EBITDA x 8 multiple = $240MM value

As EBITDA grows, the multiple expands dramatically. And that’s all due to running your business well. How are you positioning your business?