Human error costs industry billions

One of the greatest risks to the success of a business is human error caused by employees' misunderstanding of key aspects of their job roles, and this risk is commonly overlooked or underestimated.

Mary Clarke

In 2008, a white paper entitled 'Counting the Cost of Employee Misunderstanding' from global analyst firm IDC, examined employee misunderstanding and its financial impact on 400 businesses in the UK and the US with more than 5000 employees.¹ It established that 23% of employees do not understand at least one critical aspect of their job. On average, businesses with 100000 employees are each losing £31 million per year, equating to approximately £315 per employee, whilst the estimated overall cost to US and UK businesses is £18.7 billion.

The pharmaceutical industry was cited as one of the top four industries with the greatest level of employee misunderstanding, largely because employees are constantly dealing with substances that can prove lethal if mishandled. IDC calculated the pharma industry can potentially lose £23.9 million each year, based on the entire employee population of UK pharmaceutical companies.

The biggest impact of employee misunderstanding for pharmaceutical companies was found to be unplanned downtime; more than one-third of companies (37%) reported loss of business as a result — this figure was the highest across all the sectors surveyed. The tangible impact of this can be financially shattering. One pharmaceutical company reported a misunderstanding that resulted in the Enterprise Resource Planning (ERP) system alert ticket being overridden and 4 days on a production line being lost at a cost of £200000 per day.

Employee misunderstandings can also directly affect business performance; 89% of pharmaceutical companies surveyed claimed productivity levels had dropped because of such misunderstandings and 85% of these companies stated that their reputation had suffered as a direct result of it.

In some instances, employee misunderstanding can even lead to business failure; for example, one UK pharmaceutical company said that a procurement error resulted in a chemical catalyst being unavailable for a dedicated production facility. Because of this, the facility could not function and the company was left with no other option than to shut down.

How can this risk be mitigated?

For pharmaceutical companies that want to remain competitive, employee misunderstanding must be addressed. Employees are the foundation of every organization and ultimately determine a company's success, but many employers know little about what their employees understand about their job roles and how confident they are in performing them. The potential risks posed by employee misunderstandings can, however, be mitigated by regular employee assessments that allow managers to identify knowledge gaps.

Assessments should be based on individual job roles so that managers can see how employees respond to the typical challenges they face in their daily work. They can also be based on a specific subject; for example, customized assessments on regulations can aid compliance and mitigate the risk of employee misunderstanding.

The insight gained from regular assessments enables managers to address potential problems by delivering the right training programmes at the right time, which can improve employee confidence and increase productivity. A targeted and specific training approach also eliminates the need for 'one size fits all' training programmes, which are often ineffective because of their lack of flexibility and individualization. It can also help to cut costs, as companies are not paying to train employees that already have that particular knowledge. Further cost savings can be achieved by identifying the 'go to' people in an organization — those who 'less knowledgeable' employees feel they can approach for advise — as these people can be used to train and mentor others.

Knowing employee strengths and weaknesses not only helps to bridge knowledge gaps and reduce the risk of human error; it also allows managers to make more informed decisions about which people can take on additional responsibility when required to do so or how to make the best use of employees when redundancies must be made, which, in the present financial climate, is unfortunately commonplace. According to the latest Labour market report from the Chartered Institute of Personnel and Development (CIPD) and KPMG,² published in May, the job market will continue to shrink during the next 3 months as the number of employers planning to make redundancies continues to exceed the number of employers planning to hire. Making people redundant is a difficult task and lacking a clear understanding of employees' skills or competency only compounds the issue.

With the pharmaceutical industry becoming increasingly competitive, it is imperative that companies make the most of their employees. To do this effectively, managers must have sufficient insight into the skills and knowledge of their workforce. Regularly assessing people on their knowledge and understanding of their roles will uncover weaknesses that can be immediately addressed and, more importantly, help eliminate risks resulting from employee misunderstandings.

Mary Clarke is CEO of Cognisco (UK).

References

1. Counting the cost of employee misunderstanding (IDC, Framingham, MA, US, 2008).

2. The Labour Market Outlook Survey – Quarterly Survey Report (KMPG & CIPD, May 2009).