Many people often ask: how expensive is it to develop your policies and procedures? But is this really the right question?
- The physical cost of writing policies and procedures.
- The opportunity cost of NOT writing policies and procedures.
- The cost of writing policies and procedures AND NOT using them!
What Does It Cost to Write Policies and Procedures?
If we are going to look at costs then we need to account for labor to write, review, release and receive the information. First there is the labor cost to write and publish your procedures, which includes personnel costs, overhead, and the methods, skills and tools. Somebody has to research the material, find best practices, and write out the actual policies, procedures, and forms. A technical writer is who usually does this but if you don’t have a technical writer then you should use a manger that has the subject matter knowledge.
Once written a manager must review and approve your written policies and procedures. You might want to include a consultant, lawyer or other professional too, depending on the subject at hand. Many policy and procedure documents include regulations, laws, or standards for compliance and having a trained professional to review your documents is always a good idea.
And finally, you must release them to everyone that has to use them. Releasing your procedure documents includes ensuring you have some type of document revision control, an introductory training or announcement session, and some type of follow up to see how well everyone is using them.
Yes this sounds expensive. If your employees are writing and reviewing policies and procedures then they are not producing and bringing in revenue. But what is the cost if you don’t write any policies and procedures?
The Cost of NOT Writing Policies and Procedures
The cost of not developing policies and procedures include such things as waste, fraud and abuse. But it also includes your inability to recover from disasters quickly and the opportunity cost of lost revenue due to poor customer service standards, poor quality, and the untold inefficiencies that result from not have proper business processes defined. Having none, or having few, or having very poorly developed policies and procedures can be catastrophic.
Let’s say that having poor or nonexistent policies and procedures is resulting in only 15% inefficiencies, poor quality and losses due to waste, fraud and abuse. We call this number your Cost of Quality (COQ) or better yet, your cost of poor quality (COPQ). To put this in perspective, various quality gurus have estimated a company’s COPQ to range from 15% to 40% of your total sales. That’s right, your losses due to inefficiencies, poor quality and lost revenue can be huge.
Imagine you have 100 employees and $15 million in revenue. Then having a very low COPQ of only 15% would translate into $2.25 Million in losses. Do you think you could develop your own policies and procedures for less than $2 million? I think you can and by using Bizmanualz policies and procedures manuals, the cost is a tiny fraction of your COPQ.
The Cost of Writing Policies and Procedures and NOT using Them
But wait, there is the cost of developing policies and procedures and not using them, which includes all of the costs of developing and the costs of NOT developing. Imagine spending the time to write out your policies and procedures, develop job descriptions, create process maps, and then just put everything on the shelf. I’m’ not kidding. A lot of companies spend the time to produce their policies and procedures and then they file them away.
I am reminded of the business that encountered some significant fraud. They had millions embezzled from them from inside the accounting department. Their board of directors was furious when they found out there were no written policies and procedures in place. So they immediately ordered that a system of policies and procedures be developed to prevent any future embezzlement. What do you think happened?
The company spent a lot of money to develop them and then failed to use them. Everything was business as usual, which also meant there was opportunity for new embezzlement schemes. A few years later another embezzlement plan was discovered. This time it was not because of the lack of policies and procedures, but instead because they failed to use them. What good are your internal controls if you have lax standard operating procedures?
How Expensive Is It to NOT Develop Policies and Procedures?
So the question is not what does it cost to write policies and procedures. The question is how expensive is it to NOT develop them or worse, develop them and not use them. Policies and procedures are important as internal controls against waste fraud and abuse. But they are also an important element of driving down your Cost of Poor Quality. Without proper policies and procedures in use, your business is at risk of poor business practices (i.e. customer service, quality), poor protection from fraud, and you will not be very prepared for potential disasters. Policies and procedures are not the expensive part, it’s the losses your business is experiencing right now (and could experience in the future) from not using a system of policies and procedures that you should be worried about.
Download Free Sample Procedure Manual Templates to see how easy it is to edit MS Word Templates to build your own policy and procedure management system that can help protect your business.