What Does It Cost to Write Policies and Procedures?
Every business runs on processes. Some are well defined and written down, but many are ad hoc, leaving employees uncertain whether a process even exists. Ask yourself: how expensive is it to develop your policies and procedures, and is that really the right question to be asking?
Perhaps the better question is what it costs not to write them. There are really three main costs you should weigh, and the largest one rarely shows up on any invoice. This article breaks down the real cost to write policies and procedures, the far bigger cost of skipping them, and the trap of writing procedures that you never actually use.
What Does It Cost to Write Policies and Procedures?
The cost to write policies and procedures is the total labor and oversight required to research, draft, review, release, and maintain your documented processes. If you are going to look at costs honestly, then you need to account for the labor to write, review, release, and receive the information. There are really three main costs you should consider when writing policies and procedures:
- 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.
Writing Costs
First there is the labor cost to write and publish your procedures, which includes personnel costs, overhead, and the methods, skills, and tools involved. Somebody has to research the material, find best practices, and write out the actual policies, procedures, and forms. A technical writer usually does this work, but if you do not have a technical writer, then you should use a manager who has the subject matter knowledge.
Oversight Costs
Once written, a manager must review and approve your policies and procedures. Depending on the subject at hand, you may want to include a consultant, legal counsel, or other professionals in your oversight costs. Many policy and procedure documents reference the regulations, laws, or standards you are expected to follow, and the U.S. Small Business Administration guidance on staying legally compliant is a reminder that having a trained professional review your documents is always a good idea.
Distribution Costs
Finally, you must release and distribute the policies and procedures to everyone who 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 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 do not write any policies and procedures at all?
The Cost of NOT Writing Policies and Procedures
The cost of not developing policies and procedures includes such things as waste, fraud, and abuse. It also includes your inability to recover from disasters quickly and the opportunity cost of lost revenue from poor customer service standards, poor quality, and the untold inefficiencies that result from not having proper business processes defined. Having none, having few, or having very poorly developed policies and procedures can be catastrophic.
Cost of Quality
Suppose that having poor or nonexistent policies and procedures results in only 15% inefficiencies, poor quality, and losses due to waste, fraud, and abuse. We call that number your Cost of Quality (COQ), or better yet, your cost of poor quality (COPQ). To put this in perspective, various quality gurus and the American Society for Quality have estimated a company COPQ to range from 15% to 40% of total sales. Your losses due to inefficiencies, poor quality, and lost revenue can be huge.
Procedures Save Money
Imagine you have 100 employees and $15 million in revenue. 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? You can, and by using Bizmanualz policies and procedures manuals, the cost is a tiny fraction of your COPQ. In essence, procedures save you money by avoiding the losses you would otherwise incur without them.
What Is the Cost of Writing Policies and Procedures and NOT Using Them?
There is also the cost of developing policies and procedures and then not using them, which includes all of the costs of developing them and all of the costs of not developing them. Imagine spending the time to write out your policies and procedures, develop job descriptions, create process maps, and then just putting everything on the shelf. It is not far fetched. A lot of companies spend the time to produce their policies and procedures and then file them away.
Cost of Unused Procedures
Consider the business that encountered some significant fraud. They had millions embezzled 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?
Cost of Not Managing Procedures
The company spent a lot of money to develop the documents and then failed to use or manage the policies and procedures. Everything continued as 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 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 it costs to write policies and procedures. The question is how expensive it is to not develop them, or worse, to develop them and not use them. Policies and procedures are important internal controls against waste, fraud, and abuse, and 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 such as weak customer service and quality, poor protection from fraud, and poor preparation for potential disasters. Policies and procedures are not the expensive part. The losses your business is experiencing right now, and could experience in the future, from not using a system of policies and procedures are what you should be worried about.
Download free policies and procedures to see how easy it is to edit MS Word templates and build your own policy and procedure management system that can help protect your business.
Frequently Asked Questions
What does it cost to write policies and procedures?
The cost to write policies and procedures is mainly labor: the time to research, write, review, approve, release, and distribute each document. That includes personnel costs, overhead, and any consultant or legal review, plus the training needed to put the procedures into use.
Why is the cost of not writing policies and procedures higher?
Without documented policies and procedures, you absorb the cost of poor quality: waste, fraud, rework, poor customer service, and slow disaster recovery. Quality experts estimate this cost of poor quality at 15% to 40% of total sales, which usually dwarfs the labor cost of writing the procedures.
What is the cost of poor quality (COPQ)?
The cost of poor quality is the money you lose to inefficiency, defects, and waste that better procedures would prevent. For a company with $15 million in revenue, even a 15% cost of poor quality equals $2.25 million in annual losses.
How can procedures save a company money?
Documented, well managed procedures reduce errors, strengthen internal controls, and cut the losses that make up your cost of poor quality. The savings from avoided waste and fraud are typically far greater than the cost of writing the procedures.
What happens if you write procedures but never use them?
Writing procedures and then filing them away combines both cost categories: you pay to develop them and still absorb the losses of not following them. Unused procedures leave internal controls weak and can open the door to fraud, as many embezzlement cases show.
