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To make these costs useful for decisions, document the situations, distinguish active work from elapsed time and estimate what an action could realistically improve. This guide provides a method, an example and a worksheet.
Key points
A hidden cost may appear in the accounts without being identified as the cost of a problem.
Five days of waiting does not mean five days of labour consumed.
The estimated cost of a problem and the benefit recoverable by fixing it are different amounts.
What does a hidden cost include?
Repeated rework consumes salaries already recorded in the accounts. An urgent delivery produces a visible invoice. What remains hidden is the connection to the original error and the total resources used to correct it.
Henri Savall and ISEOR distinguish additional costs from economic activity prevented. This helps examine both resources consumed and lost production or sales opportunities. It does not provide a standard amount to apply to every employee or company. See the foreword to Renouveau du contrôle de gestion (in French).
The simplified calculation here focuses on time and spending associated with specific situations. It is not a complete application of ISEOR’s socio-economic method.
Where should you look?
Situation | Question | Evidence to examine |
|---|---|---|
Reworking a case | Why must the work be repeated? | Versions, corrections and exchanges |
Searching for information | Where should the information be available? | Repeated requests and search time |
Entering the same data in several systems | Which data is entered more than once? | Screens, exports and checks |
Repeated coordination | Which decision or rule is missing? | Follow-ups and meetings about the same issue |
Waiting for a decision | Who can decide, and what do they need? | Request dates, decision dates and consequences |
These situations also affect purchasing, production, operations, HR and finance. Process mapping places them in the complete journey of a case.
Document an observable problem
Record the case, the difficulty, the people involved and the consequence. Where possible, compare interviews with documents, system records or observation. Consistent reports are still different from timed measurements.
State the observation period and scope. A few unusual cases do not establish an annual workload. Look for variations in volume and complexity. Where data is uncertain, use a range and explain its bounds. An organisational assessment can connect different departments’ accounts of the same problem.
Value time and spending separately
Estimated labour cost for the period = occurrences × active minutes per occurrence ÷ 60 × hourly cost.
If several people contribute, count each person’s time without counting the same exchange twice. Add documented external costs such as urgent transport, corrective services or penalties only when they are not already included elsewhere.
A case may wait four days but require twenty minutes of correction. The waiting period is not four days of salary consumed. It may create financing costs, penalties or lost margin; estimate those separately if the evidence supports it.
For production or sales prevented, document demand, available capacity and the margin that could have been earned. Potential revenue in full is not a recoverable benefit.
Organisation and assessments
Make organisational decisions with a clear assessment
Our assessments identify practical changes to help your teams and processes work together.
A worked example
This fictional teaching example uses assumptions, not observations from an engagement. Assume fifteen order corrections a month. Each requires twenty-five minutes of active work in total: identifying the error, correcting it and informing the customer. The hourly cost is €30.
15 × 25 ÷ 60 = 6.25 hours a month, valued at €187.50 a month, or €2,250 over twelve months at constant volume. A possible four-day delay before correction is not included in this workload calculation.
Suppose an action could prevent 70% of the corrections. This assumption needs testing; it is not a standard prudence factor or proof of a conservative estimate. At full effect, it would release 52.5 hours a year, valued at €1,575. A reduction of 50% to 80% gives a value of €1,125 to €1,800. These bounds are teaching assumptions too.
These amounts describe potentially recoverable capacity before the cost of the action. They are not automatically spending reductions. Include implementation, running costs, timing and actual reuse of the time. If the action starts part-way through the year, the first-year benefit differs from the steady annual rate.
Avoid double counting
One cause can produce different costs that can legitimately be added. Incorrect information may require both internal correction and urgent transport. A common cause alone does not establish a duplicate.
Double counting occurs when the same resource is valued twice. If the twenty-five minutes already includes ten minutes speaking with the customer, do not add those minutes again under complaint handling for the same cases.
Give each estimate a scope, period and case or event reference. Remove partial overlaps or show the estimates separately without adding them.
Choose the actions
Compare recoverable benefit, correction cost, time to effect and consequences for the teams. A simple action on a modest problem can be worthwhile quickly. A costly issue or material customer risk may justify a longer project.
Account for dependencies: correcting shared data or a rule may improve several situations. Specify the owner, resources, measurement and review date. The Spentia action plan example connects findings with management decisions.
Tool: problem worksheet
Field | What to record |
|---|---|
Situation and scope | Event, cases and teams involved |
Period and frequency | Observed occurrences and seasonality |
Active time | Time by role, separate from waiting |
Related spending | Documented external costs |
Further readingSources and confidence | Observation, system record, document or report |
Valuation | Formula, rates and uncertainties |
Cause to verify | Proposed explanation and supporting evidence |
Overlaps | Cases, hours or spending already counted elsewhere |
Action and recoverable benefit | Preventable share, correction cost and timing |
Our lead-to-cash action plan example shows how to move from hidden costs to priorities in an industrial equipment business. It combines experience from several engagements; the gains shown are estimates.
Frequently asked questions
Are hidden costs absent from the accounts?
Are hidden costs absent from the accounts?
Not necessarily. Spending can be recorded without its origin being isolated. Other effects, such as activity prevented, do not correspond to a recorded expense. Distinguish these situations.
How do hidden costs differ from poor-quality costs?
How do hidden costs differ from poor-quality costs?
The analyses overlap on defects, rework and complaints. Hidden-cost analysis also considers other organisational problems and lost activity. A quality cost already tracked separately is no longer hidden in the same way.
How can we measure without a time-tracking system?
How can we measure without a time-tracking system?
Observe a set of cases representative of the situations being studied and compare the observations with the teams’ accounts. State the size and limits of the sample. A transparent estimate can be useful without being presented as exhaustive measurement.
Can every effect be expressed in money?
Can every effect be expressed in money?
No. Some effects on customers, teams or quality are difficult to quantify financially. Document them separately and use them as decision criteria. Their absence from the financial total does not make them unimportant.
Sources
Henri Savall, Véronique Zardet and Laurent Cappelletti, Renouveau du contrôle de gestion — foreword excerpt, Éditions EMS, 2025, particularly p. 18. French reference on additional costs and activity prevented.
The worksheets, assumptions and calculations are Spentia teaching materials. No amounts from client engagements are reproduced.
