Targets are a necessary part of all businesses but have you stopped and really thought how the target is structured, whether it is achieving the desired outcomes or whether it’s working but in isolation. Can achieving a target, which for all intent and purpose looks like a robust and worthy measure, cost a business? Do you have processes that cost you more than add benefit?
Sometimes you don’t have to look far to see opportunities… here Bob’s story.
Bob is an international business man. He travels a great deal and to many countries. He recently landed in London after a successful business trip to the United States. While away Bob made a few expensive purchases and when back in the UK went through the ‘goods to declare channel’ completed his customs declaration form, and paid the requisite tax.
Value of product converted from USD to GBP less taxable allowance times the appropriate duty percentage = tax payable. Simple!
A few weeks later Bob receives a letter from HMRC. This was posted to Bob in an A5 envelope and contained two A4 sheets of paper. The covering letter tells Bob that he used the wrong exchange rate in his calculations and that he has underpaid his tax by 19p!
Having removed the perplexed and then humorous grin from his face Bob pondered the cost of telling him about this error….
- First Class postage £0.65p
- A5 Envelope £0.12p
- A4 Paper £0.05p x 2
- Printing and production? £0.10p
Bob generously assumes that this is a ‘systems generated output’ so decides not to add any ‘people’ costs to his sum, but even so Bob reckons it has cost at least 0.97P to write to him and ask him to pay 0.19p. That’s more than 5 times the cost of the unpaid! That is not good business sense and nobody could think otherwise – surely?
Bob and I discussed what might be the drivers for him receiving the letter…
- Maybe the system parameters are not set correctly and a small change could fix this. Easy to change.
- Maybe there is an internal target that look at unpaid v collected in isolation of the costs. Easy to change.
- It’s tax, so it’s a matter of compliance not cost. OK, so we can debate this one, but there is still opportunity to change thresholds and save money.
When is the last time you reviewed your target’s and the activity costs associated in achieving them? What’s stopping you? You could be saving your business money?