Stop calling it “soft.” Price people-risk like insurers do.
The problem we keep mislabeling
If you run an industrial P&L, you already know what hurts: shift-to-shift misalignment, fuzzy handoffs, supervisor span overload, onboarding debt, and knowledge walking out the door. None of it sits neatly on a balance sheet—but all of it erodes throughput, raises rework, and delays decisions.
We call the financial drag GMAR: Gross Margin at Risk from operational, people-side friction. Across real-world observations bounded by simulation, a credible envelope for many mid-market operations often lands in the 8–22% of gross margin range (with a median in the mid-teens). The point isn’t to worship a point estimate. It’s to set a decision-useful range, pick a number, and govern improvement with signals—not adjectives.
Definition:
GMAR (%): the expected portion of your gross margin exposed to coordination failures (handoffs, alignment, role load, onboarding debt, cross-functional latency).
GMAR ($): Gross Margin ($) × GMAR (%) at your chosen decision percentile.
A CFO-friendly way to price “soft” risk
You’re already good at credit and inventory risk. Use the same discipline here:
Map where value stalls. Pick one high-value product family or work center. At each handoff, capture three signals: wait time, rework, decision latency.
Quantify frequency × severity. Count how often each stall occurs and what it costs (lost throughput, changeover delay, order age, scrap). Convert to dollars at your GM%.
Apply credibility weighting. Blend your week of observations with practical priors (e.g., high mix-variance lines tend to have larger handoff loss).
Run a Monte Carlo. Produce a P10–P90 GMAR range. Bind it with floors/ceilings so outliers don’t dominate.
Pick a decision percentile. Many teams choose P50–P60 for planning.
Illustration:
Revenue $200M, GM 25% → GM$ $50M.
Decision GMAR 14% → $7M at risk.
You won’t fix it all in a quarter. But you can target a measurable slice, and you can watch it move.
The 90-day play (no headcount)
Weeks 1–2 — Instrument (lightly) & align
Walk the value stream; mark red-dot handoffs (high wait/rework/latency).
Start a 15-minute daily huddle with a one-line “constraints” column.
Log 7 days of frequency × severity on 3–5 hotspots.
Weeks 3–4 — Choose three moves
Score candidates by Value / Certainty / Effort and pick three you can execute with current supervisors:
Standard work on a high-variance step (cuts rework/changeover).
Shift-change SOP with a five-minute checklist + visual board.
Knowledge capture before role transitions/retirements.
Weeks 5–12 — Execute & show the basis points
Assign one owner/date per move; publish it.
Track 2–3 dollar-tied KPIs: first-pass yield, changeover time, order age, scrap.
Post a weekly mini-P&L: bps gained by move + “how we’ll keep it.”
Week 13 — Close & lock-in
Review GMAR signals vs. start.
Document controls so the gains stick.
Select the next value stream.
In practice, this “three-move cycle” often recovers tens of basis points in a quarter—small on their own, meaningful in aggregate, and confidence-building for the next cycle.
What not to do
Don’t boil the ocean. One family/work center beats a 17-project spreadsheet.
Don’t chase tech first. Sensors/AI shorten feedback loops; they don’t replace governance + standard work.
Don’t accept slides without signals. If it lacks a before/after metric tied to dollars, it’s not a move.
Don’t run it by committee. Appoint a single owner for the 90-day cycle.
Where the numbers come from (and what they don’t mean)
The 8–22% GMAR envelope reflects simulation bounded by observed patterns in mid-market, capital-intensive environments with mix complexity and thin managerial bandwidth. Your range depends on your product mix, asset intensity, and team design. Treat the envelope as a starting hypothesis and quickly build your local range.
Limitations: This approach estimates the financial impact of coordination variance; it does not measure every source of margin drag (materials, FX, pricing). Keep it in scope.
Quick FAQ
Is this just Lean with a new name?
No. Lean tools help, but pricing the risk is the unlock. CFOs fund what they can price.
How much time will this take my team?
Leadership: ~60–90 minutes across 90 days. The work happens inside existing shifts.
Can we start in one sector or plant?
Yes—and you should. Pick the highest-value path where delays are loudest or most frequent.
What about confidentiality?
Run the pilot privately. Share anonymized before/after signals outside the team only if helpful.
If you want help, here’s how Navetra™ fits
Navetra gives teams a three-step shortcut: (1) a quick GMAR estimate with a CFO-friendly range, (2) a ranked list of three moves for the next 90 days, and (3) a simple weekly bps signal your finance team trusts. No headcount. No new software rollouts. Just priced risk and visible deltas.
CTA: RSVP to your 15-minute diagnostic debrief → Here.
About the author
Mina Johl is an engineer with an MBA who has led across oil & gas, nuclear, construction, and manufacturing. She’s the founder of Purple Wins and creator of Navetra™, an organizational-intelligence platform that prices people-side risk and ranks 90-day fixes for operators.
