Why lead time is a cost – even when it doesn't appear in the calculation

When a company sells physical products, it is used to calculating the cost of lead time.

 

Transportation, warehousing, tied-up capital and wastage affect the cost and thus also the price of the product. A product that is left in a warehouse is not considered free of charge just because no one is actively working on it.

 

For services and digital processes, the cost is not always as visible.

 

A case can sit idle in an inbox or wait for information for several weeks without any cost being recorded at that particular process step. Therefore, it is easy to conclude that the waiting time costs nothing.

 

But is that really true?

 

Active working hours and total lead time are not the same thing

Lead time is the total time that elapses from the start of a process until the customer has received their delivery or message.

 

In an insurance process, for example, it could be the time from when a customer submits their application until the insurance is risk assessed and approved.

 

Let’s look at a simplified example when signing a health insurance:

 

• The customer fills out an application.
• The customer fills out a health declaration if necessary.
• An administrator reviews the responses and assesses whether any additions are needed.
• If medical records are required, the customer needs to provide a power of attorney.
• The power of attorney is sent, signed and checked.
• Records are ordered from the relevant healthcare providers.
• The journals are awaited and compiled.
• A risk assessor reviews the documentation and makes a decision.
• The customer receives their final decision.

The total active working time in such a case may be a few hours.

 

The total lead time can also be several weeks or months.

 

The difference largely consists of waiting: for the customer, for internal handovers, for powers of attorney and, above all, for medical records from various healthcare providers.

 

If two medical records are needed to make a decision, it doesn’t matter if the first one comes a few days later or the second one comes two months later. The case still cannot be closed until the supporting documents are complete.

 

It is in that gap that a large part of the hidden cost arises.

 

Waiting time doesn’t mean the cost is stagnant

When a case is pending, no new hours worked may appear in the calculation. But the waiting time affects both the customer and the organization.

 

It primarily creates four types of costs.

 

1. Losing the customer

The longer an application takes, the more opportunities the customer has to change their mind.

 

The customer may lose interest, forget about the application, or choose another insurance company that can provide a decision more quickly. By the time the decision comes, the customer’s situation or needs may have already changed.

 

The cost of such a dropout is not only the initial premium. The company also loses out on the revenue that the customer relationship could have generated over several years.

 

Lost conversion is therefore one of the most important costs of lead time – but it is rarely seen as a cost in the processing process itself.

 

2. The wait creates new administrative work

A slow process often creates work that would not have been needed if the case could have been concluded more quickly.

 

Customers contact customer service to ask how things are going.

 

Administrators send reminders about powers of attorney. Caregivers need to be contacted when medical records are not received. Incomplete documents need to be followed up and completed.

 

It is sometimes described asfailure demand: demand that arises because the process could not meet the customer’s needs from the beginning.

 

Each status question may seem insignificant, but multiplied by hundreds or thousands of pending cases, it becomes a significant burden on both customer service and agents.

 

3. The matter must be understood several times

When a caseworker or risk assessor starts working on a case but then needs to put it aside while waiting for further information, a context switch occurs.

 

When the missing medical record arrives a few weeks later, the person often needs to familiarize themselves with the case again:

 

• What was the application about?
• What did the health declaration reveal?
• Which journals had already arrived?
• Why was the addition requested?
• What had already been assessed?

Previous documents may need to be reread and reasoning recreated.

The more times a case is opened, shelved, and reopened, the higher the true processing cost. It is work that is rarely visible when you only count the time for the final risk assessment.

 

4. Revenue is delayed

A started but unfinished case is a work in progress.

 

The company has already invested time and resources into the application, but the deal is not yet closed. Premium income cannot normally start flowing until the risk assessment is complete, the customer has accepted the terms and conditions, and the insurance has been activated.

 

A long lead time therefore also affects cash flow.

 

For a single case, the effect may be small. However, if a large number of applications are simultaneously waiting for completions or records, both capacity and future revenue are tied up in the process.

 

In case of claims, there is an additional cost.

In the event of an insurance claim, the customer is often in a vulnerable situation and is waiting not only for an administrative decision, but also for financial security.

 

A long lead time can easily lead to more status issues, escalations and complaints. It can also affect the customer’s trust in the insurance company long after the case has been closed.

 

The same waiting time as when applying for a new policy can therefore have different financial consequences, but the basic problem is the same: time creates costs even when no active processing is taking place.

 

Start measuring the entire process

If you only measure time worked, you miss a large part of the cost.

To understand the true efficiency of the process, one needs to distinguish between:

 

• Touch time:the time when someone is actually working on the case.
• Wait:the time the case is waiting for a person, system or external source.
• Total lead time:the time from the customer’s application to the final decision.

It is also valuable to follow:

 

• number of pending cases
• time in each process step
• number of reminders and status contacts
• how many times a case is reopened
• the percentage of customers who complete the process
• the time from application to activated insurance
• cost per closed case

Only when there is a clear starting point can it be measured what a change actually achieves.

 

Shorter lead times don’t mean people should work faster

When talking about short lead times, it can sound like administrators should be able to do more in less time.

 

That is rarely where the greatest potential lies.

 

If the active working time is a few hours but the total process takes two months, asking the risk assessor to work ten percent faster does not solve the problem.

 

The great opportunity lies in removing waiting, unnecessary handovers, manual follow-ups and recurring context switches.

 

That was an important starting point when we built Sinos.

 

By digitizing the collection of medical information and delivering a structured basis, a part of the process that previously took weeks or months can be completed significantly faster. This not only reduces the time to decision, but also the administrative work that the long wait creates.

 

Time must be included in the calculation

Lead time is not just a measure of how long the customer has to wait.

It impacts conversion, administration, capacity, cash flow and customer experience. In claims cases, it also impacts trust at the moment when the customer needs their insurance company the most.

 

If the calculation only includes the active processing time, a large part of the process’s real cost risks remaining invisible.

 

Waiting time may seem to be without a cost.

 

But it is rarely free.

 

 

 

 

 

 

 

 

Author: Peter Ehrling, Sinos Solutions, 2026-10-05