What if you could quantify the cost of delaying upgrades and technology improvements?
SUNY (State University of New York) at Buffalo says that two of its industrial engineering faculty have released a paper that quantifies the cost of "managerial neglect." The method was developed to analyze a two-stage supply chain, but the authors say "the managerial-neglect model could be used by managers to make the case for capital expenditures needed to improve a company's processes," according to Alfred Guiffrida and Rakesh Nagi.
Here’s how it works:
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.
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