Use of Process Cost

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Work processes form the engine of a business.

Solid workflows in a department allow individuals to do their work without hiccups. Each person is able to access the information needed and utilize necessary tools to complete her tasks.

Well integrated processes across departments enable teams to hand off work swiftly so the next team can carry on without backtracking.

It is costly to a business when work processes are inefficient. Bottlenecks, rework, and errors are examples of process issues that chew up time and money. Therefore, process cost is an important KPI.

In monitoring process cost, tallying the costs associated with various activities gives you the total cost for the process. It is not too useful..

To turn that total process cost into a useful KPI, you need to convert it to a unit cost basis. Let’s look at the benefits administration group for an insurance company. The team processes benefit claims. The total cost for this team is $200,000 per year and it processes 50,000 claims. The average process cost is $4.00 per claim.

This process cost per claim can be used to evaluate your pricing strategy. Is it adequate to cover costs adequately? You can use the information to assess the productivity of the team. You can also compare it with other customer support costs.

Meaningful process cost KPIs give useful information for decision making.

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