Calculation Of Rework Costs

Rework has both hard and soft costs. The hard costs are much easier to define because they show up as line items on the service provider's financial statements. They include:

• Warranty Expense
• Charge Back Expense
• Insurance Settlements

Soft costs are much harder to determine because they don't jump off of a spreadsheet as readily as do hard costs. However, they are just as relevant and significant as the hard costs. They include:

• Loss of business from customers who will not return. Studies indicate that 80-95 percent of customers will not return to a business after just one unfavorable experience.
• Loss of productivity for all individuals within the organization who must divert their expertise from paying jobs to deal with the rework.
  • Technician.
  • Accounting staff
  • Parts Manager
  • Service Manager
  • Warranty Claims Manager
• Loss of planned maintenance customers. Comeback work takes a place in the overall work queue just as a paying job does, and creates waiting time for all customers. Those with a choice often choose to go elsewhere if the wait is excessive.

Assumptions must be made in the calculation of the soft costs because of the fact that they do not appear as a line item on a spreadsheet. Conservative assumptions tend to be easier to support when developing the overall business case.