Point of Diminishing Returns
A Research and Adjustments department regularly submitted requests for additional staff as the business and overall customer base grew.
The manager of the department groused on a regular basis about the volume of work the staff had to process each month and how it continued to grow with no relief in sight.
Explaining the Increase
In reviewing financial forecast for the next year, the divisional manager noted a significant addition to staff in the Research and Adjustment department. The department manager was summoned and asked to explain the increase.
The department manager explained that the amount of disputes and research that had to be performed was growing at a pace faster that the business and the process and service levels required even greater resources to remain compliant.
Knowing that the additional financial expense would not be acceptable, the district manager sought help in controlling the growth in volume and expenses. While visiting with a peer at an industry conference, the problem came up in a discussion of business challenges.
A similar problem had occurred at the peer’s business. But a new departmental manager quickly fixed the problem.
Fixing the Problem
Curious, the district manager asked what had been the solution. The peer explained that the manager had learned about the Point of Diminishing Returns while attending a Managing Operations Workshop.
The peer explained that after determining the cost of researching and resolving a dispute, the new Research and Adjustments manager submitted a proposal to write off all disputes less than the cost of research, the point of diminishing returns.
It didn’t make sense to spend more money researching a dispute than the value of the dispute.
- Does your management team know how to calculate the unit cost of their operation?
- Do they know when process is valued over purpose?
The Point of Diminishing Returns is one of the many basic and practical tools and exercises included in the Managing Operations Workshop.
Contact us to learn more about raising the operational knowledge level of your management team.