Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

The Price of Managerial Neglect

10.04.2006


What does it cost a company when a manager neglects to improve a supply-chain or other manufacturing process over a three-year period? According to conventional management wisdom, such sins of omission are commonplace but difficult, if not impossible, to quantify in dollars and cents.



Until now.

A new method for putting a price tag on the cost of "managerial neglect" has been developed by two industrial engineers in the University at Buffalo School of Engineering Applied Sciences. The method, and how it would be applied to a two-stage supply chain, is described in the current issue of "The Engineering Economist."


"Our method can be used for any process that has variability, like a multi-stage supply chain, manufacturing process or a quality-improvement project," explains Alfred Guiffrida, Ph.D., UB adjunct instructor of industrial and systems engineering, who developed the method with Rakesh Nagi, Ph.D., UB professor of industrial and systems engineering.

"Management theory says to improve a process you have to first improve its variability. Well, we’ve developed a way to put a price tag on the expected costs of failing to improve variability, for failing to improve a process," Guiffrida says.

Adds Nagi, "In this context, managerial neglect is something that a manager should be doing, but is not doing, and it’s costing the company something. It’s seldom that managerial neglect is quantified in financial terms."

The method, which the UB engineers say can be used with an Excel spreadsheet, finds the net present value of improvements that could be done over a period of time, but are not done. The method factors in the learning rate of a process, which is the rate by which a process would improve naturally, without intervention, through repetition.

The cost of managerial neglect is found by calculating the difference between learning-rate returns and the cost of not making improvements over time. In the example of a hypothetical two-stage supply chain (from manufacturer to customer) the UB engineers showed that managerial neglect over a three-year period would double costs incurred from untimely delivery of goods, inventory holding, production stoppage or other inefficiency.

"In other words, if a manager does intervene to improve the supply chain the company over three years would save 50 percent in costs incurred by inefficiencies in the supply chain," Nagi says.

Their managerial-neglect model could be used by managers to make the case for capital expenditures needed to improve a company’s processes, Guiffrida and Nagi say.

"Our model is easily applicable to the real world," Guiffrida says. "Managers could use it to get the attention of upper management, to show them in quantifiable terms the costs you incur unnecessarily for failing to make improvements."

Adds Nagi, "Companies should be willing to invest the expected cost of managerial neglect because they are going to incur the cost through poor performance of the process, anyway. This will help middle managers justify investments needed for improvement."

The University at Buffalo is a premier research-intensive public university, the largest and most comprehensive campus in the State University of New York.

John Della Contrada | EurekAlert!
Further information:
http://www.buffalo.edu

More articles from Business and Finance:

nachricht Mathematical confirmation: Rewiring financial networks reduces systemic risk
22.06.2017 | International Institute for Applied Systems Analysis (IIASA)

nachricht Frugal Innovations: when less is more
19.04.2017 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Can we see monkeys from space? Emerging technologies to map biodiversity

An international team of scientists has proposed a new multi-disciplinary approach in which an array of new technologies will allow us to map biodiversity and the risks that wildlife is facing at the scale of whole landscapes. The findings are published in Nature Ecology and Evolution. This international research is led by the Kunming Institute of Zoology from China, University of East Anglia, University of Leicester and the Leibniz Institute for Zoo and Wildlife Research.

Using a combination of satellite and ground data, the team proposes that it is now possible to map biodiversity with an accuracy that has not been previously...

Im Focus: Climate satellite: Tracking methane with robust laser technology

Heatwaves in the Arctic, longer periods of vegetation in Europe, severe floods in West Africa – starting in 2021, scientists want to explore the emissions of the greenhouse gas methane with the German-French satellite MERLIN. This is made possible by a new robust laser system of the Fraunhofer Institute for Laser Technology ILT in Aachen, which achieves unprecedented measurement accuracy.

Methane is primarily the result of the decomposition of organic matter. The gas has a 25 times greater warming potential than carbon dioxide, but is not as...

Im Focus: How protons move through a fuel cell

Hydrogen is regarded as the energy source of the future: It is produced with solar power and can be used to generate heat and electricity in fuel cells. Empa researchers have now succeeded in decoding the movement of hydrogen ions in crystals – a key step towards more efficient energy conversion in the hydrogen industry of tomorrow.

As charge carriers, electrons and ions play the leading role in electrochemical energy storage devices and converters such as batteries and fuel cells. Proton...

Im Focus: A unique data centre for cosmological simulations

Scientists from the Excellence Cluster Universe at the Ludwig-Maximilians-Universität Munich have establised "Cosmowebportal", a unique data centre for cosmological simulations located at the Leibniz Supercomputing Centre (LRZ) of the Bavarian Academy of Sciences. The complete results of a series of large hydrodynamical cosmological simulations are available, with data volumes typically exceeding several hundred terabytes. Scientists worldwide can interactively explore these complex simulations via a web interface and directly access the results.

With current telescopes, scientists can observe our Universe’s galaxies and galaxy clusters and their distribution along an invisible cosmic web. From the...

Im Focus: Scientists develop molecular thermometer for contactless measurement using infrared light

Temperature measurements possible even on the smallest scale / Molecular ruby for use in material sciences, biology, and medicine

Chemists at Johannes Gutenberg University Mainz (JGU) in cooperation with researchers of the German Federal Institute for Materials Research and Testing (BAM)...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Plants are networkers

19.06.2017 | Event News

Digital Survival Training for Executives

13.06.2017 | Event News

Global Learning Council Summit 2017

13.06.2017 | Event News

 
Latest News

Quantum thermometer or optical refrigerator?

23.06.2017 | Physics and Astronomy

A 100-year-old physics problem has been solved at EPFL

23.06.2017 | Physics and Astronomy

Equipping form with function

23.06.2017 | Information Technology

VideoLinks
B2B-VideoLinks
More VideoLinks >>>