Measuring operational cost per transaction
If your CFO asked what it costs your operation to handle one card transaction, or one dispute, could you answer to within a factor of two? Most operations leaders know their headcount and budget by heart. Fewer know the unit cost, which is the number underneath every automation business case and outsourcing proposal they will be asked to approve.
Aim for a figure you trust to within about 20 percent, built in a couple of weeks from data you already hold. Break it down by activity from the start, since a single blended number for the whole operation hides most of what is useful.
Building the number
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Choose a unit for each activity
Transactions for payment processing and exceptions, applications for onboarding, cases for disputes, contacts for customer support. Take the counts from your systems of record, so nobody argues about the denominator.
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Allocate people by where their time goes
Most people split their week across more than one activity. Ask team leads for rough percentages, or run a two-week sample in which people log time in half-day blocks. Either is good enough for a first version.
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Use fully loaded cost
Start with salary and add benefits, allowances and visa costs where they apply, a share of office space and equipment, and a share of the managers above the team. Salary on its own will understate the cost by a wide margin.
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Add the tools and services the work consumes
Include case management seats, reconciliation software, per-check fees from KYC vendors and outsourced support. Leave out the core platform unless operational volume drives what you pay for it.
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Divide, and check it across three months
Divide each activity's monthly cost by its monthly volume, for three consecutive months. If a unit cost jumps by a third from one month to the next, check the allocation before you believe the change.
Count rework and error handling inside the activity that causes it. The hour an analyst spends chasing a customer for a missing document belongs to onboarding, even if it happens a week after the application arrived. Leave out project work and one-off remediation, which distort the monthly figure and deserve their own budget line.
Remember too that the number measures worked time only. An application that sits for nine days in a queue costs you almost nothing in staff time and may cost you the customer, which is one reason we argued that KYC backlogs are rarely a staffing problem. Read unit cost next to cycle time and you see both halves.
An illustrative program
Say a card program processes 2 million transactions a month and has an operations team of 20 people, at a fully loaded cost of $6,000 a month each. Tools and outsourced services used by the team add another $30,000. That is $150,000 a month in total, or 7.5 cents per transaction. The numbers are invented and deliberately round.
The blended figure says little on its own, so split it. Disputes take five people and $5,000 of tools, which is $35,000 a month for 1,000 disputes, or $35 each. Exceptions and reconciliation breaks take seven people and $10,000 of tools: $52,000 for 13,000 items, or $4 an item. Customer contacts about payments take eight people and $15,000 of tools and outsourcing, which comes to $63,000 for 21,000 contacts, or $3 a contact.
The dispute figure is probably too low, because support takes the first call and finance posts the losses, and neither shows up in the disputes team's cost. That spread is what we meant when we called chargebacks the cost that sits between teams. If you can estimate the support and finance time per dispute, add it. A unit cost is one of the few places where the full figure becomes visible to anyone.
Using it for decisions
Start with automation. Suppose a vendor offers a tool that auto-resolves 40 percent of exception items. At $4 an item, 40 percent of 13,000 is 5,200 items and $20,800 a month of work, and that is the ceiling. A tool resolves the easy items first, and easy items take less time than the average, so if they cost half as much, the realistic figure is closer to $10,400. It only becomes a saving if you hire less or move the freed time to work that was going undone. Put that next to the license and integration cost and the decision is usually clear.
Most automation business cases assume the easy items cost as much as the average one, and they almost never do.
Outsourcing works the same way. An outsourcer quotes $2.50 per customer contact against your $3, which on 21,000 contacts looks like $10,500 a month. Add the person you keep to manage the vendor and check quality, at $6,000, and the contacts that come back to your own team because the outsourced agent couldn't resolve them. What is left is thin enough that service quality should decide the question.
The same unit costs belong in pricing. In this example, 1,000 disputes at $35 comes to $35,000 a month, which is 1.75 cents spread over every transaction. A merchant segment with ten times the average dispute rate carries 17.5 cents of dispute handling per transaction, more than twice the blended cost of the entire operation. If that segment pays the same fees as everyone else, the rest of the book is paying for it.
Rebuild the figures each quarter with the same method, and keep the workbook simple enough that someone else can update it. Once they are stable, put them next to the volume forecast. When volume is expected to double, you will see which activity's cost doubles with it and which one needs changing first.
Discuss your operations
