Transform Rework into Revenue: Slash Costs 20% by Reducing Errors in Delivery
If you've been around Transformation a while, you've heard plenty about the concept of "rework" - costly effort spent fixing errors that could have been avoided. Rework shows up in every function, whether it's a digital team debugging software, a mortgage processor chasing missing customer info, or a manufacturing plant correcting defects.
In knowledge organizations, transformation leaders often dismiss rework as a minor concern compared to the grander aims of innovation, efficiency, and speed. Perhaps the idea of tracking rework feels overly tactical in those early days. Maybe the potential benefits seem too small.
This is a costly miscalculation.
Fast forward six months into any transformation, and those grand sources of value won’t be visible on the P&L. The CFO will be asking pointed questions about the ROI on all those workshops and coaches. Your political capital will be shrinking as executives start murmuring about “corporate fads.” By this point, your only hope for showing value is to resort to “quick and dirty” cost-cutting. We discussed the perils of such approaches in a recent newsletter: Increase Your Odds By Avoiding This Famous Cost-Cutting Mistake.
Removing rework offers an easier path to proving value
Rework is actually the perfect place for Transformation Professionals to start their effort. It's readily measurable, directly connects to financial outcomes, and delivers benefits the CFO can bank - in weeks, not quarters.
Better still, the disciplines required to measure and reduce rework - sketching processes, collecting stats, finding constraints - form the foundation of any successful transformation effort.
The key to success with rework-reduction: connect it to hard-dollar benefits.
It’s not enough to show a reduction in bugs or processing-errors. At a minimum, you have to turn rework-reduction into FTE savings, whether implied or harvested. If you then want to identify 10x more value, take an extra step by linking rework to revenue. If you’re unclear on how to link process-improvement to revenue, read our newsletter titled “Boost Revenues 10% and Get Promoted.”
Which source of value you choose, cost or revenue, depends on the process you’re fixing and the data you have available. In both cases, you simply have to follow the steps below to turn rework into benefits. Once you’re showing value to the CFO and their peers, you’ll have earned the right to chase all those grander aims in your transformation.
Step 1: Choose one process where you can get started fast
Choose a process you want to dig into. Don’t spend time coming up with a fancy prioritization scheme. Many a CFO will expect your rollout to follow a framework like “feasibility and impact.” You don’t have time for that. When it comes to transformation, you need to identify benefits quickly. The only way to make a fast impact is to get full cooperation of a process-team’s leader.
That’s why we always advise leaders to start on a process run by a “friendly.” A friendly leader will give you data and implement your suggestions, with minimal convincing.
We once ignored this advice and started work with the orgs most “innovative” division. The leader told us explicitly she was not interested in participating at that time. Compelled by the c-suite, however, we persisted for 6 months trying to inject change into the division. By the end, that division was the very last to onboard, out of an org of 90,000 employees. Unless you’re executing pure, adversarial cost-cutting, you’ll want extreme buy-in from your first participants.
A second “rule” when choosing where to start: choose processes with a strong connection to revenue-generation. That will give you more options when it comes to quantifying benefits. Luckily, revenue touches more processes than you might think. Supplier Onboarding might onboard partnerships that generate revenue. Digital delivery teams might work on features with well-defined revenue targets. Any client onboarding process directly affects revenue.
In one of our financial services clients, we ticked both criteria by focusing on the Payments team. The team’s process sat squarely next to revenue-generation where its aim was to onboard institutional clients to the company’s payments platform. Once a client was live, the company earned daily revenue on each transaction. More importantly, however, the team was run by a friendly. The leader was among the most vocal and enthusiastic about the transformation which made their area an obvious choice.
Step 2: Start counting monthly volumes
Next, simply start counting the number of items delivered or completed each month. We’ll call this “Completions” but it’s the same as volumes or “throughput.” We’ll use this to figure out the delivery productivity of the team.
Now, you don’t need to get “Data” with a capital “D” at this point. Just ask someone in the process team for last month’s Completion number. If “last month” was December or January (i.e. short months that might skew results), have them double-check that that month was broadly “representative” of a typical month or just get an average.
With our Payments team, we didn’t even start with a monthly number. We knew the team averaged 2,000 new clients per year so we just turned that into a monthly number of 167 (2,000 clients per year / 12 months).
Step 3: Find rework, the hidden tax on delivery
Now for the big question: what percentage of effort is spent on fixing mistakes?
If this info isn’t already flagged, have your teams track rework for just one week. Categories might include:
Whatever the number of items per week, just scale that to a monthly number and use that to calculate the percent of all completed work items that are actually rework items (# of rework items / total work items).
For one large financial client, 45% of their client onboarding items in any given month were actually rework—primarily from correcting data errors related to customer information. Before we even put a value on this activity, just having the percentage visible was enough for the teams to ask for deeper investigation.
In this case, the sales team was the primary source of errors as they didn’t see data collection as sufficiently important compared to the job of getting the sale. To be fair, they made sure to get each document mostly right but they assumed the operations team could fix small discrepancies. What the sales team didn’t understand was the operations team had no way to tell what info was right and what was wrong. So, once the operations team spotted any issue in a document, they had to re-do the entire document in order to abide by certain “know your client” regulations.
Step 4: Translate rework into cold, hard cash
Once you have numbers on rework, it’s a simple matter to translate them into the thing your CFO loves above all else: dollars.
The simplest approach is to take your rework percentage and multiply it by your team's fully loaded cost. For our sales team, where rework represented 45% of items, the logic would go as follows:
That $4.6M represents a real savings opportunity. If you can remove the rework, all else equal, you can “harvest” 45% of the team spend as savings (see footnote 1).
Before you pledge this amount to your CFO, however, you should go figure out how you can reduce rework. The best, and most common, solutions are small and cheap. If, however, the solution requires investment in people or tooling, you can think of the $4.6M as the max investment you can spend and still stay ROI-positive.
In this case, to avoid distracting sales people with this problem, we added a role whose sole job was to shadow the sales people and ensure correct data entry. Typically when we suggest that a team add FTE, executives chafe. Their intuition tells them the $200K cost for a new role is not ROI-positive. Implicitly, they are comparing this cost to some imagined “no cost” solution where the sales team simply “works better.”
But that is the wrong comparison. We don’t need to compare the cost of a new role vs. the cost of applying some speculative adjustment to our sales force. We know that adding the role would yield a 23x ROI ($4.6M annual savings / $200K annual spend). If later, we find an intervention that doesn’t require that role, we’ll make an ROI-based decision at that time (see footnote 2).
Step 5: Level-up benefits with revenue saves
While most transformations dwell on cost, revenue is where you can really distinguish yourself as a Transformation Professional.
For revenue-generating processes, rework doesn't just waste effort—it delays revenue realization.
In a previous newsletter, we detailed a financial client who could earn $302 from each customer, per day, after go-live. The client tracked counts so they knew they attracted 5,700 new customers per year. This meant that any extra day of delay in onboarding was worth a full $1.7M, system-wide (5,700 clients per year * $302/day).
The letter goes on to explain how growing queues meant the time to onboard customers had started to slip. Whereas customer onboarding used to take 20 days, it now took a full 100 days before they started earning revenue. Those 80 days of delay would result in a massive loss of $138M ($1.7M/day * 80 days).
The client could have solved this problem by reducing rework. Specifically, the client knew the queue was growing as a result of a 14% shortfall between outgoing Completions and incoming Clients. In other words, the rate of “water” flowing into the bucket each month was 14% higher than the rate of water flowing out and that was causing the water level (the queue) to rise.
The client also knew that over 45% of all completed items were actually rework resulting from poorly captured customer data. We won’t recreate the exact math here but that rework, if eliminated, was exactly enough to drain the queue.
The team had a choice. They could just remove the rework and harvest FTE (yielding $1.5M in cost savings) or they could go after revenue. The revenue option would secure an extra $138M each year, almost 94x more than the cost-savings from “harvesting.”
Enterprise transformation shouldn’t be sexy
The dirty secret among Transformation Professionals is that we've all been selling complex methodologies when simpler, more tactical approaches often suffice.
Yes, there's a place for two-pizza teams, agile ceremonies, and CI/CD pipelines. None of that matters, however, if you can't answer the basic question: "What financial impact are we having?"
Measuring and reducing rework gives you that answer faster than most other approaches. It provides immediate financial validation without requiring wholesale organizational change. It focuses everyone on what actually matters: delivering more value to customers faster.
If your transformation is struggling to gain traction—or worse, at risk of being canceled—try this approach. Spend two hours counting your rework each week, learn to price it out, and share the results with your CFO.
If, along the way, you find yourself confused or in need of help, get in touch! We’ve seen and done it all.
Enthoosa AI is a company dedicated to making Transformation Professionals successful. Whether you just want advice or you want to try out one of our tools, we’re here to help.
___________________________
1 - For more advanced practitioners, know that this assumes each rework item takes exactly the same effort as a typical work item. Sometimes rework items are the same effort or even more. Usually, however, rework items take half the effort to complete. If that’s the case, you need to discount potential savings by this number. So, if reworked items only take 50% effort, your savings are 50% of what we described above. There are several simple ways to figure out the relative effort required of rework. We will save those for a future letter.
2 - We do see a lot of pushback when we propose adding FTE to go after high-ROI opportunities. We get the impulse. When the org is blind to the true cost of waste and speed, it’s smart policy to push against headcount. The rule-of-thumb becomes counterproductive, however, once you’re able to put hard numbers on improvement.
AI Builder and Entrepreneur
4moLink to newsletter: https://thebreakout.substack.com/p/transform-rework-into-revenue-slash?r=g740n