What do errors cost? In baseball, sometimes the game.
What about in business, in particular data errors? A quality management concept developed by G. Loabovitz and Y. Chang quantifies the cost of error prevention versus remediation versus failure. It’s the 1:10:100 rule.
The authors determined hidden costs of errors expand exponentially. In their studies they found that if prevention costs X dollars, then remediation in the case of failure to prevent the error costs ten times X dollars, and the consequences of bad data left uncorrected are one-hundred times X dollars!
Remediation costs more than prevention, and failure costs more than remediation. The focus, often on remediation, should be put on prevention.
Our forebearers said things like “A stitch in time saves nine” and “An ounce of prevention is worth a pound of cure.” The principle is the same, but the professors have quantified it in their eye-opening rule.
The rule has implications and applications for P2P. Leading experts like Judy Bicking point out the fallacy of saying “We don’t have time” to do something right the first time; you end up having to make more time to fix it. The 1:10:100 rule warns that it’s going to cost you a lot more to correct it later on than it will to get it right now. Two immediate applications to accounts payable are in data capture and data verification.
On the data capture side, for example, the rule suggests that if you can avoid manual re-entry of data, do. Any time data is manually entered there is the possibility of making mistakes and introducing data errors. It has been a justification for both automated data capture and e-invoicing.
Another application would be data verification. If, for example, you employ scanning and data extraction/capture, investing in time to verify the accuracy of the captured data will save you from the cost of remediation or worse.
Similarly, in vendor setup, the cost of verifying vendor data (cost of prevention) will avoid greater costs of errors in the data downstream (cost of remediation, or worse, of failure).
So it will cost you something to take time to put policies and procedures in place, and follow them — including investing in tools and resources to support the policy. But if you do, you will save ten or even one hundred times that cost.
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