{"id":611,"date":"2011-01-08T14:16:05","date_gmt":"2011-01-08T14:16:05","guid":{"rendered":"http:\/\/www.saasoft.com\/blog\/?p=611"},"modified":"2011-01-08T14:16:05","modified_gmt":"2011-01-08T14:16:05","slug":"does-a-queue-have-a-cost","status":"publish","type":"post","link":"https:\/\/hcse.blog\/?p=611","title":{"rendered":"Is a Queue an Asset or a Liability?"},"content":{"rendered":"

\"\"<\/a>Many\u00a0believe\u00a0that\u00a0a queue is a good thing.<\/p>\n

To a supplier a\u00a0queue is tangible evidence that there is demand for\u00a0their product or service and reassurance\u00a0that\u00a0their resources will not sit idle, waiting for work\u00a0and consuming profit rather than creating\u00a0it.\u00a0 To\u00a0a customer a queue is tangible evidence\u00a0that the product or service is in demand and therefore must be worth having. They may have to wait\u00a0but the wait\u00a0will be\u00a0worth it.\u00a0 Both suppliers and customers unconsciously collude in\u00a0the Great\u00a0Deception and even give it a name – “The Law of Supply and Demand”. By doing so they unwittingly open the door\u00a0for\u00a0charlatans and tricksters who deliberately create and maintain queues\u00a0to make themselves appear more worthy or\u00a0efficient than they really are.<\/p>\n

Even though we all know this\u00a0intuitively we seem unable to do anything about it.\u00a0“That is just the way it is” we say with a shrug of resignation. But it\u00a0does not have to be so – there is a path out of this dead end.<\/p>\n

Let us\u00a0look at this problem from a different perspective. Is a product actually any better because\u00a0we have waited to get\u00a0it? No. A longer\u00a0wait\u00a0does not\u00a0increase\u00a0the\u00a0quality of the product or service and may indeed impair it.\u00a0 So, if\u00a0 a queue does not increase quality does\u00a0it\u00a0reduce the cost?\u00a0\u00a0The answer again is “No”. A queue always\u00a0increases the cost\u00a0and often in many ways.\u00a0\u00a0Exactly how much the cost increases by depends on what\u00a0is on the queue, where the queue is, and how long it is. This may sound counter-intitutive and\u00a0didactic so\u00a0I need to explain in a bit more detail the reason\u00a0this statement is an inevitable consequence of the Laws of Physics.<\/p>\n

Suppose\u00a0the queue comprises perishable goods; goods\u00a0that require constant maintenance;\u00a0goods that command a fixed price when they\u00a0leave the queue; goods\u00a0that are required to be held in a container of limited\u00a0capacity with fixed overhead costs (i.e. costs that are fixed irrespective of how full the container is).\u00a0 Patients in a hospital or passengers\u00a0on an\u00a0aeroplane are typical\u00a0examples because\u00a0the patient\/passenger\u00a0is deprived of their ability to look after themselves;\u00a0they are totally dependent on others for supplying all their basic needs; and they are perishable in the sense that a patient cannot wait forever for treatment and an\u00a0aeroplane cannot fly around\u00a0forever waiting to land.\u00a0A queue of patients waiting to leave hospital or an aeroplane full of passsengers\u00a0circling to\u00a0land\u00a0at an airport\u00a0represents an\u00a0expensive\u00a0queue – the queue has a cost – and the bigger the queue is and the longer it persists the greater\u00a0the cost.<\/p>\n

So how does a queue form in the first place?\u00a0The answer is: when the flow in exceeds\u00a0the flow out.\u00a0The instant that happens the queue starts to grow bigger.\u00a0 When flow in is less than flow out the queue is getting smaller – but\u00a0we cannot have a negative queue – so when the flow out exceeds the flow in\u00a0AND the size of the queue reaches zero\u00a0the system suddenly changes\u00a0behaviour – the work dries up and the resources become idle.\u00a0 This creates a different cost – the cost of\u00a0idle resources consuming\u00a0money but not producing revenue.\u00a0So a queue\/work costs and no queue\/no work costs too.\u00a0 The\u00a0least\u00a0cost\u00a0situation is when the work arrives at exactly the same rate that it can be done:\u00a0there is no\u00a0waiting by anyone – no queue and<\/strong> no idle resources.\u00a0\u00a0Note however that this\u00a0does not imply that the work has to arrive at a constant rate – only that rate at which the work arrives\u00a0matches the rate at which it is done\u00a0– it is the difference between the two that should be zero at all times. And where we have several steps\u00a0– the flow must be the same through\u00a0all steps\u00a0of the stream at all times.\u00a0 Remember the second condition for minimum cost – the size of the queue\u00a0must be zero as well – this is the zero inventory goal of the “perfect process”.<\/p>\n

So, if any deviation from this perfect\u00a0balance of flow creates some form of cost, why\u00a0do we ever tolerate queues? The reason is that the perfect world above implies that it is possible\u00a0to predict the flow in and the flow out with\u00a0complete accuracy and reliabilty.\u00a0\u00a0We all know from experience that this is\u00a0impossible:\u00a0there is always\u00a0some degree of\u00a0 natural variation which is unpredictable and which we often call “noise” or “chaos”.\u00a0For that single reason\u00a0the lowest cost (not zero cost) situation is when there is\u00a0just enough breathing space\u00a0for a queue to wax and wane – smoothing out the unpredictable variation\u00a0between inflow and outflow.\u00a0This\u00a0healthy queue is called a buffer<\/strong>.<\/p>\n

The less\u00a0“noise”\u00a0the less breathing space is needed and the closer you can get to zero queue cost.<\/p>\n

So, given this\u00a0logical explanation\u00a0it might surprise you to learn\u00a0that most of the flow variation we\u00a0observe\u00a0in real processes is neither natural nor\u00a0unpredictable – we deliberately and persistently inject\u00a0predictable flow variation\u00a0into our\u00a0processes.\u00a0 This unnatural\u00a0variation is\u00a0created\u00a0by own policies\u00a0–\u00a0for example, accumulating DIY jobs until there\u00a0are enough to justify doing them.\u00a0 \u00a0The reason we do this is because we have been\u00a0bamboozled into believing it is a good\u00a0thing for the financial health of our system.\u00a0We have been beguiled\u00a0by the accountants – the Money Magicians.\u00a0\u00a0Actually that is not precise enough –\u00a0the accountants themselves \u00a0are\u00a0the innocent messengers – the deception comes from the Accounting Policies.\u00a0 The\u00a0major niggle\u00a0is\u00a0one convention\u00a0that has become ossified into Accounting Practice – the convention that a queue of work waiting to be finished or sold represents an asset –\u00a0sort of frozen-for-now-cash that\u00a0can be\u00a0thawed out or\u00a0“liquidated”\u00a0when the product is\u00a0sold.\u00a0 This convention\u00a0is not incorrect\u00a0it is just\u00a0incomplete because, as we have demonstrated,\u00a0every queue incurs a cost.\u00a0\u00a0In accountant-speak a cost is called a\u00a0liability and unfortunately this queue-cost-liability\u00a0is\u00a0never included in the accounts and this makes a very, very, big difference to the outcome. To assess the financial health of an organisation\u00a0at a point in time an accountant\u00a0will use a balance sheet to\u00a0subtract the liabilities\u00a0from the assets and come up with a number that is called\u00a0equity. If that number\u00a0is zero or negative\u00a0then the\u00a0business is financially dead – the\u00a0technical name is\u00a0bankruptcy and no accountant likes to utter the B word.\u00a0 Denial is not a reliable long term buisness strategy and\u00a0if our Accounting Policies\u00a0do\u00a0not include the cost of the queue as a liability on the balance sheet then\u00a0our\u00a0finanical reports will be a distortion of reality and will present\u00a0the\u00a0business\u00a0as healthier than it really is.\u00a0 This is an Error of Omission and has grave negative consequences.\u00a0 One of which is that it can create\u00a0a sense of\u00a0complacency,\u00a0a blindness to the\u00a0early warning signs of financial illness and\u00a0reactive rather than proactive behaviour. The problem is compounded when a large and complex organisation is split into\u00a0smaller, simpler\u00a0mini-businesses that all suffer from the same financial blindspot. It\u00a0becomes even more difficult to see the problem when everyone is making the same error of omission and when it is easier to blame someone else for the\u00a0inevitable problems that ensue.<\/p>\n

We all know from experience that prevention is better than cure\u00a0and we also know that\u00a0the future is not predictable with certainty: so in addition to\u00a0prevention we need vigilence, prompt action,\u00a0decisive action\u00a0and appropriate action\u00a0at the earliest detectable sign of a significant deterioration.\u00a0Complacency is not a reliable long term survival strategy.<\/p>\n

So what is the way forward? Dispense\u00a0with the accountants? NO! You need them – they are very good at what they do – it is just that what they are doing is not exactly what\u00a0we all need them to be doing – and that is because the Accounting Policies\u00a0that they\u00a0diligently enforce are incomplete.\u00a0 A\u00a0safer strategy would be for us to set\u00a0our accountants the task of learning how to count the cost of a queue and to include\u00a0that in our internal<\/strong> finanical\u00a0reporting. The\u00a0quality of business decisions based on\u00a0financial data will improve and that is good for everyone – the business,\u00a0the customers and the reputation of the Accounting Profession. Win-win-win.<\/p>\n

The question was “Is a queue and asset or a liability?” The answer is “Both”.<\/p>\n","protected":false},"excerpt":{"rendered":"

Many\u00a0believe\u00a0that\u00a0a queue is a good thing. To a supplier a\u00a0queue is tangible evidence that there is demand for\u00a0their product or service and reassurance\u00a0that\u00a0their resources will not sit idle, waiting for work\u00a0and consuming profit rather than creating\u00a0it.\u00a0 To\u00a0a customer a queue is tangible evidence\u00a0that the product or service is in demand and therefore must be worth … <\/p>\n

Continue reading “Is a Queue an Asset or a Liability?”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10,18,34,35,42,43,45],"tags":[78,115,163,214,224,229,250,288],"class_list":["post-611","post","type-post","status-publish","format-standard","hentry","category-business","category-finance","category-questions","category-reflections","category-how","category-why","category-what","tag-cost","tag-flow","tag-management-accounting","tag-process-engineering","tag-quality","tag-queue","tag-safety","tag-three-wins"],"_links":{"self":[{"href":"https:\/\/hcse.blog\/index.php?rest_route=\/wp\/v2\/posts\/611","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/hcse.blog\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/hcse.blog\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/hcse.blog\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/hcse.blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=611"}],"version-history":[{"count":0,"href":"https:\/\/hcse.blog\/index.php?rest_route=\/wp\/v2\/posts\/611\/revisions"}],"wp:attachment":[{"href":"https:\/\/hcse.blog\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=611"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/hcse.blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=611"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/hcse.blog\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=611"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}