Why Are Business Procedures Important?

I frequently joke that for most business owners, creating or updating the policies and procedures manual ranks somewhere between doing annual employee reviews and closing down the business. For small businesses closing down the business usually happens before the office procedures are written. I often think that not having—and more importantly, not using—written business procedures is a reason why many small businesses fail within a year or two of starting.

Why are procedures at the bottom of the priority list? When procedures are explicitly stated and available to those who need them, they are an invaluable business management tool. They answer the who, what, when, where, and why questions about the company’s business processes. They help specify what makes the company different from its competitors.

I plan to begin a series of blog posts championing the benefits of business procedures. Before I do, however, I want to briefly touch on the overall costs and benefits to small and medium sized companies of documenting their business processes by creating office procedures. 

Costs of Written Business Procedures

There are some disadvantages to written business procedures. One commonly encountered disadvantage is igniting an employee rebellion against the creation of procedures. In the 1980s and 1990s, business process analysis and improvement (which required creating business procedures) became synonymous with the grim reaper appearing to cut expendable employees. Those still standing lived in mortal fear that a subsequent mowing would result in them being escorted out as well.

While this fear is understandable, employee morale and support for office procedures can actually be increased by management. Showing how the advantages (listed at the end of this post) of creating and following the policies and procedures manual benefits employees own self-interests goes a long way toward this. For an example of poorly managing employees’ fear, however, watch the 1999 cult comedy Office Space.

Another disadvantage is the cost of creating the procedures. Depending on the complexity of the business process being documented and the level of detail needed in the documentation, costs, including managers and employee’s time, to create procedures can range from under $200 to tens of thousands of dollars. The fact that the costs to document the business process are all upfront and easily identified, often swamp the longer payback time and often overlooked savings resulting from creating a policies and procedures manual.

While many business owners and managers think the biggest cost of written business procedures is their creation and maintenance, that’s simply not true. The biggest cost is documenting the company’s business processes in the form of a policies and procedures manual and then never taking the manual off the shelf.

Why? Because by not implementing the office procedures as documented the company loses all the benefits of documented procedures, swallows the costs to document the procedures, and reduces faith and support for any later projects to document the internal business processes.

Benefits of Written Business Procedures

The reason I think business procedures are so important is they provide a wealth (pun intended) of benefits to business managers. When procedures are used well they reduce waste in a variety of ways:

  • Improve internal communication within the business
  • Improve external communication with vendors and customers
  • Simplify and quicken new hire training 
  • Ease workflow management, especially when work is conducted at multiple locations
  • Provide a standard to measure performance by
  • Facilitate creating a baseline to measure improvements by
  • Help employees fulfill work responsibilities of those on vacation or sick
  • Improve company value when selling business

If you know of any business that doesn’t need one or more of the above benefits, copy what its management is doing! For companies that invest the time, money, and effort in creating, following, and updating company policies and procedures, they gain significant strategic advantages over their competitors. 

Next time, I’ll write about how creating and using business process documentation improves internal communication within the business.


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