Bureaucracy costs: High effort, unevenly distributed

Bureaucracy slows things down. Many companies in the mechanical and plant engineering sector share this assessment. But how significant is the burden really? The VDMA commissioned the Institute for SME Research (IfM) Bonn to investigate this exact question. The updated study now provides new insights: not only federal, but also state, municipal, and EU regulations were recorded: a total of around 3,900 regulations relevant to companies in the industry.

A patchwork of obligations

Around 30,000 legal regulations exist in Germany, of which 17,000 affect the economy. For companies in the mechanical and plant engineering sector, about 3,900 remain after systematic analysis. These include regulations in areas such as occupational safety, taxes, environment, personnel, and standards.

The majority of these regulations come from federal law. EU regulations appear formally less often - but only because many of them have been tightened in Germany through so-called "gold plating" measures and thus incorporated into national law. State and municipal regulations play a subordinate role, as building regulations and individual permits were not considered in the study.

The costs are not evenly distributed

The study divides the requirements into eight areas, including personnel, occupational safety, finance & taxes, environment, standards, compliance, statistics, and future topics such as sustainability reporting. Notably, the number of regulations does not automatically correlate with the cost burden. For example, environmental regulations cause many individual obligations but are not necessarily the most expensive. Statistical obligations are also often a source of frustration, even though their financial burden is relatively low.

In addition to time and wage costs, material expenses, consulting efforts, the degree of digitization, and subjective burden factors were recorded.

Three case studies - three realities

Company A: Largest operation, solidly digitized - but with increasing burdens

The first company examined, with around 1,700 employees, reported bureaucracy costs of around 3.8 million euros in 2023 - up from 2.5 million euros in 2021. Measured as a percentage of sales, the share increased from 1.0 to 1.3%. The increase is partly due to new EU requirements and internal quality demands.

Cost drivers: 

• Occupational safety: 400,000 euros for work equipment safety
• Compliance: 380,000 euros for new management system
• Time tracking: 265,000 euros investment costs
• Works council: 345,000 euros for 5.5 full-time positions

The company is about 70% digitalized. Interface problems with non-digitalized authorities or partners remain an obstacle.

Company B: Different priorities, different effort

The second company is also a machine manufacturer - family-run, operating internationally, but less digitalized. Here, about 40% of the bureaucracy costs are attributed to finance, taxes, and customs, which the managing director sees as a necessary controlling instrument.

Special features:

Compliance effort hardly measurable: "We do it anyway."

Time tracking: 400,000 euros for new system

• Works council: only one exempted person (65,000 euros) Skepticism towards digitalization: "Paper creates less transparency."
• Despite similar structures, the company differs significantly in dealing with legal requirements - demonstrating how individual bureaucracy costs arise.

Company C: Small business with disproportionately high burden

The third company employs 150 people - and struggles with the highest relative burden: bureaucracy costs here account for 6.3% of annual sales. The reason is not only the size of the company, but also the loss of business in Russia and pandemic-related short-time work, which caused additional effort.

Burdensome factors:

• 34 full-time equivalents exclusively for bureaucracy
• Occupational safety: over 500,000 euros annually
• Data protection training by external consultants
• Statistics only possible with imaginary values (“boxes don't fit”)
• Short-time work: effort was deemed too high for the limited benefit

A major issue was also the uncertainty due to non-finalized PFAS regulations - associated with existential concerns and high emotional pressure on management and staff.

Bureaucracy works - but not always the same

The study shows: bureaucracy costs are not only a question of scope, but also of evaluation. Some companies perceive certain obligations, including standards or occupational safety, as necessary and quality-assuring - others as disruptive and burdensome. Requirements are perceived as particularly burdensome when they:

• are unclear or contradictory,
• are frequently changed,
• do not fit the reality of the company,
• are associated with high interpretation effort.

Less distrust, more leeway

The study authors derive several recommendations for politics and administration:

• No overregulation: Do not further tighten EU requirements with German law.
• Consolidate instead of dissect: Bundle similar reporting obligations (e.g., sustainability, supply chains, taxonomy).
• Understandable laws: Not every interest group needs its own paragraph - practicality over obsession with detail.
• Trust instead of control: Companies are often intrinsically motivated to act more sustainably and safely.
• Involve practice: Legislative processes should involve companies and authorities early on (“ex ante” instead of “ex post”).
• Facilitate access to information: Tools like the VDMA regulation cockpit provide important guidance.

The quantified bureaucracy costs are only part of the truth. Equally significant are opportunity costs and psychological burdens: The departure from entrepreneurial passion, withdrawal from innovation fields, or the decision against succession.

A cultural shift in legislation is necessary. Trust, prudence, and clear priorities should guide actions. Bureaucracy is not a law of nature - it is manageable. And that should be the goal.