Find your hidden costs

We all know about the hidden costs of goods and services, such as reconciliation and inventory control. They eat away at our bottom line and usually become visible once we look in the rear view mirror. There is a difference between the price of something and its real cost. Think of it as price + hassle.

People have a hidden cost, too. As much as purchasing and logistics departments have wrung hidden costs out of their operations, management could use the same approach to improve business results.

Take Kristine, a business development manager with some of the best numbers around when it comes to profit margins and closing deals. But Kristine has a terrible temper; she can make life miserable for everyone around her. As for her customers, they can’t quite put their finger on it, but there’s something stressful about dealing with Kristine. There’s a hidden cost to doing business with her. Over time, this cost becomes visible as clients find reasons to justify leaving Kristine and her company.

I challenge managers to take an inventory of their team’s hidden costs, person by person. Draw up a chart for your talent, with one column identifying added values and another identifying hidden costs. For example, Added Value: “vast network of relationships in all business units.” Hidden Costs: “frequently tardy for meetings.” And so on.

I wouldn’t call a person’s added value a “strength,” and I wouldn’t call his hidden cost a “weakness.” But somewhere in the middle is a formula of added value vs. hidden costs that must be dealt with by 21st century managers. The problem with hidden costs is that they are hidden–and the results are usually hard to trace. “Hidden costs” are certainly an important part of retail, supply chain and manufacturing lexicon. Let’s make it part of effective management practice.