Cost reduction education
How to calculate the cost of inefficient workflows
Annual cost = occurrences per year × hours per occurrence × loaded hourly rate, plus the cost of rework caused by errors. Compare that to implementation cost to get a payback period in months.
The core formula
Start with frequency and handling time, then apply a loaded hourly rate that includes payroll taxes, benefits and paid time off. Add rework separately: error rate multiplied by the time each correction takes.
A worked illustration
This is arithmetic, not a customer result. A task done 3 times a week at 40 minutes, performed by staff costing $38 per hour loaded, is 156 occurrences × 0.67 hours × $38, roughly $3,950 a year. If a $2,000 change removes 70% of that time, the annual reduction is about $2,765 and payback is under nine months.
Keep estimates labelled as estimates
Until you measure the process after the change — same definitions, same period length — the figure is a projection. Cosmic Genius labels every pre-implementation number ESTIMATED for exactly this reason.
Apply this to your business
The free Cost Leak Finder walks the same method and returns your Business Cost Leak Score. Hard-dollar savings, revenue recovery, capacity recovery and cost avoidance stay separate, and every figure is labelled ESTIMATED until measured.
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