Valuation of Losses - Testimonials

Historically companies have analyzed costs using two categories - fixed and variable. To understand the true drivers of many excess costs that could have been saved, it is important to use a third cost category: Event-Based Costs. Events drive many excess costs that could have been saved and productivity losses that could have been avoided. Tying excess costs and losses to specific events is the key to successful cost reduction. I call this approach "Surgical Cost Reduction", where events that impact both fixed and variable costs are analyzed separate from the normal fixed and variable cost streams, then ranked according to their impact on the bottom line. The following charts show how unplanned events or planned events that don't go according to plan can impact fixed and variable costs associated with normal operations.   

I Specialize in Surgical Cost Reduction and Project Valuation.

Based on my personal experience with event-based costing, it is one of the most powerful elements in driving and sustaining culture change IF the entire company is engaged in its use.

What Management Says About the Importance of Valuing Losses:

Knowing the value of what you are losing sends a much different message than does actual results. These losses are not the difference between budget and actual, but define the gap between process potential and what was actually achieved. Losses that could have been gains help expand the definition of lost opportunity, tap into hidden potential, change the urgency for problem resolution and help employees understand how they contribute to the bottom line. 

Following are actual testimonials from VPs and operations/maintenance/financial managers from production facilities about the impact that valuing losses had on their operations:

General Manager: “It has certainly helped us focus activity and energy where the biggest gains can be made. We have known of opportunity in the fine crushing area, but loss valuation helped the workforce and local supervision pinpoint areas to fix. There has been a demonstrable improvement in the area performance.”

Mine Manager: “We have several areas where as a result of loss information, we took action and developed a remediation and measuring plan. We call these plans cost of quality projects. Our department reports on these projects routinely. Examples: haul truck tire cost, haul truck fuel delay, and shovel cycle efficiencies. We report on the cost of not having certain pieces of equipment available as planned. By doing this, we have taken equipment availability and transformed it to a cost that impacts our bottom line. Now the maintenance department has a tangible cost number to work with in addition to availability.”

Tankhouse Superintendent: “I think it has helped some people, hourly employees especially, realize where the big ticket losses are. The concept of loss valuation has really helped in this way.”

Mine Superintendent: “I believe the focus on failure costs has definitely improved performance. We have instituted shovel and drill optimization training, Mine Dispatch training, better haul road maintenance and improved availability by improving the scheduled vs. unscheduled ratios.”

Plant Superintendent: “We have been showing the employees at the plant the losses concerning the downtime and associated costs…This program is effective in that it makes you analyze issues in the operation and forces you to impact their costs.”

Site Controller: “It has re-focused attention on certain areas where “lost opportunity” was happening. These opportunities do not reflect in operating cost and this is an excellent way to keep focused.”

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OPPORTUNITY: An odorless invisible element defined as a favorable set of circumstances in business. The only element with an infinite atomic number and weight. When discovered and captured, it reacts with improvement programs and corporate cultures to produce a desirable green substance found in financial institutions.