Process Costs: What You Don't See Costs the Most

Ask a CEO about their process costs, and you'll usually get an approximate answer. Ask about hidden costs, and you'll get silence.

The problem: Visible costs are just the tip of the iceberg. Below the surface lurk inefficiencies that eat your margin – silently and steadily.

The Process Cost Iceberg

Visible Costs (20%)

• Salaries of involved employees
• Software licenses
• Direct material costs

Hidden Costs (80%)

• Wait times: Documents sitting on desks
• Duplicate work: Entering same data into multiple systems
• Error correction: Canceling invoices, recreating them
• Search times: "Where's the current version?"
• Communication overhead: Email ping-pong for clarification
• Opportunity costs: What else could employees be doing?

The Formula for True Process Costs

True Process Costs =
  Direct work time × Hourly rate
  + Wait time × (Hourly rate × Factor)
  + Error rate × Average cost per error
  + System costs (proportional)
  + Opportunity costs

A Concrete Example: Invoice Approval

Assumptions:

• 200 invoices per month
• Processing time: 8 minutes per invoice
• Wait time (approvals): 24 hours per invoice
• Error rate: 5%
• Hourly rate accounting: €45

Visible Costs:

• 200 × 8 min = 26.7 hours × €45 = €1,200/month

Hidden Costs:

• Wait time impact (early payment discount loss on 10 invoices): €300
• Error correction (10 invoices × 30 min): €225
• Email follow-ups (15 min per 50 invoices): €112
• System switching (5 min × 200): €750
• Hidden sum: €1,387/month

True Total Costs: €2,587/month instead of €1,200

Calculate your process costs: Our Process Cost Analyzer calculates all direct and hidden costs for you.

The 6 Biggest Cost Drivers in Business Processes

1. Media Breaks

Every time information changes medium (digital → paper → digital), costs arise:

• Printing costs
• Scanning time
• Error susceptibility
• Storage costs

Solution: End-to-end digital workflows

2. Manual Data Entry

Copy-paste between systems is the secret productivity killer:

• 2-5 minutes per transfer
• 1-3% error rate
• Employee frustration

Solution: System integrations and APIs

3. Approval Loops

Every waiting loop costs:

• Cycle time extends
• Early payment discounts missed
• Customer expectations disappointed

Solution: Automated workflows with escalation

4. Lack of Standardization

When everyone does the process differently:

• Training new employees takes longer
• Quality fluctuates
• Automation impossible

Solution: Document and standardize processes

5. Over-Control

Too many review loops cost more than they protect:

• Four-eyes principle for €10 orders?
• Three approval levels for standard operations?

Solution: Risk-appropriate approval limits

6. Shadow IT

When official tools don't work:

• Employees use personal WhatsApp
• Data ends up in personal Excel files
• Compliance risks emerge

Solution: Functional, user-friendly systems

The Process Cost Matrix

Prioritize optimizations by frequency and cost:

5 Steps to Process Cost Analysis

Step 1: Identify Process

Choose a process with:

• Clear start and end point
• Measurable throughput
• Business relevance

Step 2: Capture Process Steps

Document each step:

• Who does what?
• How long does it take?
• Which systems are involved?
• Where do wait times occur?

Step 3: Assign Costs

For each step:

• Direct labor costs
• Proportional system costs
• Error probability and costs

Step 4: Uncover Hidden Costs

Ask:

• What happens when something goes wrong?
• Where do things wait for people?
• Where do people wait for things?

Step 5: Calculate Savings Potential

Compare:

• Current costs vs. optimized costs
• Manual vs. automated costs
• In-house vs. outsourcing

Get results faster: Use our Process Cost Analyzer for systematic calculation.

ROI of Process Optimization

Typical Savings Potential

Payback Period

Process optimizations typically pay back in:

• Simple automation: 3-6 months
• Workflow systems: 6-12 months
• Complex integrations: 12-18 months

Next Steps

For a quick start:

1. Process Cost Analyzer – Calculate your true costs
2. Automation Check – Check automation potential
3. Digital Maturity Assessment – Understand your status quo

For strategic planning:

• Identify your top 5 most costly processes
• Prioritize by savings potential
• Create an optimization roadmap

Conclusion: Measure, Don't Estimate

Most companies underestimate their process costs by 50-80%. This isn't due to lack of willingness, but missing methodology.

With systematic process cost analysis, you turn assumptions into facts – and facts into decisions that improve your margin.

Identified your cost-driving processes and ready to act? Our AI Adoption Audit shows you how to strategically use AI and automation for optimization.