Opportunity cost is a deceptively simple principle of economics, that is taught in ECON 101. But, most entrepreneurs and business leaders often ignore or ignore tangibly measuring it. After writing a blog post on Indian business process outsourcing(BPO) companies and their focus on delivering low-cost services, I received several mails and messages. One of the most interesting messages was from a Harvard-graduated entrepreneur – Arijit Sengupta, who is focusing in helping companies measure the total cost of errors (TCE) and reduce it.
I like the idea of measuring all obvious and not-so obvious costs and then optimize/re-engineer operations to eradicate these costs. In my brief experience with BPOs, I’ve found that entrepreneurs and managers running these BPOs are often reluctant to proactively invest in measuring the total cost of errors and apply mitigations. They’ve been great at solving the problems/fixing the errors once they’ve been identified. But, they often (partially) ignore the waterfall impact of the errors on other business processes. So far due to the considerable (although shrinking) wage differential between India and the US, the BPOs have been able to employ extra people immediately if needed to solve a fire drill. But, once India and US reach a wage-parity, it won’t be cost-effective for the BPO firms to immediately increase the number of people working on a particular project.
I’ve been focusing on measuring the total-cost of errors and how to dramatically reduce it, with a hope that it will act as a unique differentiating factor..