There is little doubt that problems are very costly. But how do you know whether you are getting a good return on your investment in Root Cause Analysis? We use the following formula to help us understand our return on investment.
Problem: Fractured Right Arm
Total Cost: $15,000
Cost of Analysis: 16 hours (4 employees, 4 hours) $1,600
Cost of Solutions: $2,000
The formula looks like this: Cost of Problem/(Cost of Analysis + Cost of Solutions)
In this case, the return on investment is roughly: 417% = $15,000/($1,600 + $2,000)
But did we really earn such a high return? Remember, no money ever came in the door as a result of this accident - it actually went out the door three times (cost of medical expenses, cost of analysis, and cost of solutions). Yet this formula makes it look as though instead of costing money, it actually yielded a stellar rate of return. By this logic, all you need to do is maximize the number of failures (especially expensive ones!) and your company will quickly become the industry leader.
But this can't be right, can it?
Think of it this way: money is flowing out your door every day due to failures, both large and small. The same is true for your competitors. The playing field is generally level in this respect. Industry leaders identify failures and effectively eliminate them.
Problems force us to spend money, and as such are like forced investments. But we get to decide whether or not we earn a return. As long as people remain imperfect, we are going to encounter problems with the systems we create - there is no way around it.
So we are left with a choice. We can choose to systematically identify and eliminate causes of problems using the Root Cause Analysis or we can continue doing what we've always done and hope the problem doesn't happen again.
When you use the Apollo Root Cause Analysis method to analyze problems, what you really accomplish is greatly reducing the risk that the problem, or others like it, will recur.
Did the broken arm discussed above cost the company $15,000? Absolutely.
Did we spend $3,600 to make sure it never happens again? Yes, this is also certain.
So if we greatly reduce the risk that this problem (or others like it) will happen again, we have reduced the risk of incurring the cost of this problem in the future. You spent $3,600. But if you spent it on the right solution, it is a very sound investment.
And we haven't even talked about the fact that it's extremely difficult to quantify the qualitative cost of a broken arm, such as pain and suffering, or the potential for a much worse injury. Yet even without calculating the value, the probability of incurring some sort of qualitative cost is also greatly reduced.
The bottom line: It pays to solve problems the first time. The Apollo Root Cause Analysis method helps to do this.