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Process Cost

Now that we know how long each activity in the process takes to complete, we can determine how much the process costs the business. At this point, Stuart Wang recognized that it took his staff 1 to ½ hours to process a single bonus award, but he still did not know the cost of the process. At this point, we have all the information we need to calculate the cost. Figure 5-8 shows the three components that comprise the total cost:

1. The cost of the people who do the work

2. The cost of technology tools used in the process



Every business process results in costs to the organization. Therefore looking for ways to reduce costs is an essential part of process improvement. Process time is a key driver of process costs, so be sure you’ve analyzed your process timing before you try to calculate process costs. Then you’ll be ready to factor in the three components that determine total process cost.