How Controllers Calculate the True Cost of Exception Handling in ERP

The Hidden Cost Reality 

Direct staff time is easily calculated. Hidden costs - coordination overhead, working capital carrying costs, pattern blindness, opportunity cost - often exceed visible costs 2-3x. 

Direct Staff Time: The Visible Cost 

Calculation: Hours spent × Loaded hourly rate 

Example (70 exceptions monthly): 

• 35 hours monthly × $48/hour = $1,680 monthly 

• Annual: $20,160 

This is only 30-40% of total cost 

Coordination Overhead 

What's included: Interruptions, context switching, meeting time discussing exceptions, email coordination 

Typical addition: +30-40% of direct time 

Example: $20,160 × 1.35 = $27,216 annually 

Documentation Time 

Often uncounted: Writing notes, updating systems, preparing reports 

Typical addition: +20-30% of direct time 

Example: $20,160 × 1.25 = $25,200 annually 

Working Capital Carrying Cost 

Calculation: DSO delay × Average receivables × Cost of capital 

Example ($8M receivables, 7-day delay): 

• Delayed cash: $8M × 7 ÷ 365 = $153,425 

• Carrying cost at 6%: $9,205 annually 

Applies to AR collections 

Pattern Blindness Cost 

What's missed: Recurring issues not prevented, systematic improvements not identified 

Typical cost: $30,000-$50,000 annually in preventable coordination 

Opportunity Cost 

Strategic work deferred: Vendor negotiations, process improvements, relationship building 

Potential value: $80,000-$150,000 annually 

Total Cost Formula 

(Direct time + Overhead + Documentation) + (Working capital + Pattern costs + Opportunity cost) 

Example calculation: 

• Direct + overhead + documentation: $25,200 

• Working capital: $9,205 

• Pattern blindness: $40,000 

• Opportunity cost: $100,000 

Total: $174,405 annually 

Versus visible $20,160 = 8.6x multiplier 

The Reality 

Hidden costs make total 2-3x visible staff time for typical mid-market companies. 

Complete cost includes coordination, documentation, working capital, pattern blindness, opportunity cost. 

True annual cost: $80,000-$200,000 for companies handling 60-80 exceptions monthly when all factors included. 

About the Author: This content is published by ERP AI Agent. 

Published: January 2025 | Reading Time: 3 minutes