Why the existing cost saving projects have little chance of success and what can be done about it?
Never before has there been so much hype about cost saving, and never before has there been less evidence of it. We often mistake knowing the inexhaustible volume of reported data for understanding the costs, forgetting that it is not just facts that are important, but the intertwined threads and people that connect them to their ever-changing origins.
What we really need to know in order to make improvements is what these underlying processes are and how they affect a company's performance. The constantly changing interrelated causes that influence costs are mostly invisible, complex, non-linear - hard for our brains to digest and for computers to model. Instead of following a factual stream of cost data derived from financial sources and dissociated with their true origins, you should apply Disruption Diagnostics techniques that focus on authentic costs and their causes, associated with the most disruptive operational events.
"It would cost Southwest approximately 8 to 10 airplanes of flying per day if we were to add just a couple of minutes of block time to each flight in our schedule."
Greg Wells, Southwest
Built-in disruption buffers, investment in punctuality, and other inefficiencies inherent within hub and spoke operation make between 10% and 30% of total operating costs.Ongoing disruptions can account for 2-3% of variable costs especially with hub operators. One part of these costs is integrated in company's plans as an insurance against uncertainty, and another part is hidden inside the variance between planned and actual costs.
‘Delays cost the nation’s [US] economy in wasted fuel, rescheduled business meetings, and lost productivity $41 billion in 2007 alone, excluding international traffic. In 2007 airlines operating domestic flights spent $19 billion in fuel, labour and maintenance costs while aircraft sat idle or circled in holding patterns above congested airports.’
Joint Economic Committee (JEC) of the US
Disruption Diagnostics is an approach to management where unforeseen costs caused by disruptive events are diagnosed and associated with their root causes. It then becomes possible to minimise business risk by reducing costs when and where it really matters, decrease the size of operational and cost buffers in a controllable way, experience fewer 'unforeseen' events, and recover losses caused by third parties.
Disruption Diagnostics enriches the rigidly structured organisational and cost mechanisms with the fluidity of real life. As a result, your airline will become more resilient, able to bounce back more quickly when faced with unexpected events.
It is an indispensable tool for improvement in airline operational and cost efficiency, quality of service, competitiveness, and ultimately - profit.