WHEN YOU HAVE TO CUT COST?NOW! (PART 1)
Cost Management on the face of it looks like another buzz word thrown around by executives and cost management professionals for business owners to reduce their costs. But what about its practicality and, most importantly, when does need to be cost cut.
In our recent experience with the pandemic, every business owner has come to the unanimous decision, cash inflows for many businesses are not absolute and could change at the dime drop. There is thus a need to manage outflows in such a flexible way that they can be replaced with the flows.
In the whole of our past ten years of professional life, we have worked with various professionals in multiple industries, from manufacturing to retail to services. We have consistently observed that cost reduction opportunities follow a similar basic pattern across all businesses.
For every executive or business owner reading this, you have to keep two points in mind.
- Firstly, there is no single idea that will hugely reduce your cost and change the structure of how business expenses are incurred, thus solving all y
our problems in one go. If any concept such as this is presented, it is likely so risky that most organizations will not implement it. Instead, a combination of actions should be used to achieve said goals. - Secondly, when cost cut measures are implemented, they are always followed by disruptions in the business process. This is because usually, all cost cut actions require some change in business processes. In the adage spirit, “If you keep doing what you are doing, you will never be more than what you are.” Incremental ideas with minimal impact on other departments can trim up to 10% of costs.
Getting to 10 percent: Incremental Ideas.
Most businesses and organizational departments can reduce costs by 10 percent without changing their interactions with the rest of the organization or market. Some of the most common methods of reduction are:
CONSOLIDATE INCIDENTALS
Most companies have already had a try to reduce costs to an appropriate level. This goes especially incidental or non-revenue generating activity costs. This includes holiday parties, event tickets, tuition reimbursements. If that is the situation, values such as this cannot be reduced any further. Instead, evaluate which activities can be consolidated into single operations. Combining activities such as training days and celebrations into unique events and cross scheduling outside resources can help manage costs.
MANAGEMENT OF OVERDUE PERSONNEL
All administrative departments, even those considered efficient, have unresolved personnel issues. These situations sometimes exist even when a round of cost cut has been established. After eliminating unnecessary activities and determining non-viable members of the workforce, a restructuring of the workforce is necessary for jobs that are not working at the best capacity.
The first and obvious choice is to terminate any under-performing employees. It is a significant problem that needs to be curtailed, like pruning a garden. After this necessary endeavor, there may still be employees who are doing two types of tasks, valuable but unpleasant and less valuable but pleasant. In our experience, sometimes such employees use any efficiency achieved in the previous jobs that are not carried on to the following tasks.
During our evaluation of the Retail Organization, we observed a similar phenomenon; the company had spent a significant capital making its sales process more efficient. However, the growth in sales that they required and expected had not been achieved.
We evaluated the situation and concluded their Sales Executives spent the free time form streamlined sales process in serving the customers better and reading up on new products rather than phone new customers and selling products [a task which was less enjoyable than the former].
As a solution, we taught the Sales Executives a choice each time they implemented a labor-saving solution: either combine jobs and reduce headcount or increase sales by a measurable amount.
REDUCE SPENDING ON DEPARTMENT MANAGEMENT
Many Administrative Departments use as much as 20 percent of their allocated amounts to manage their activities. An evaluation can be done tasks by the Management, which were substantially similar to those that were being done approximately a year ago. It follows that those parts do not have the same level of supervision and can be checked intermittently instead of close supervision. In most situations, a close supervisory function is more or less disruptive for work carried out in the normal function. It should be noted that the supervisor’s treasured role would be encouraging employees and dealing with exceptions to the regular business carried out by a company.
GAIN CONTROL OF “MISCELLANEOUS” SPENDING.
In some businesses or departments, its “supplies” in others are entertainment or refreshment expenses, and in others, even its expense out on telecom or computer-related items. In any 15 to 20 percent of costs are found not to have been managed carefully. One particularly glaring example we encountered was in a logistics company where a significant portion was spent on stationery and supplies. The budget could not allow for the procurement of slots on an International Port, which would have a very positive impact on Sales. A simple redistribution of budgets permitted an increase in Sales by up to 10 percent.
HOLD DOWN PAY INCREASES
Although on the face, this idea would be the most implemented one, however, it is usually the first one that is overlooked.
This is because every manager believes that the personnel in the department heading are underpaid. A Human Resource
evaluation can be carried out to see where employees stand about their Marketplace. If they are not below the market,
consider holding the average pay increase in your department to 1-2 percent less than last year’s Company average.
RE-PROPOSE REJECTED COST-SAVING IDEAS
The last process that can be undertaken is to look back through the past budgetary measures and cycles carried out and evaluate. Where your department had requested and suggested activities that would increase productivity, be it whether these suggestions required some investment for implementation. These proposals may have been rejected because of cost constraints or other priorities. These proposals can now be re-evaluated for application.
CONCLUSION
Although these are merely suggestions, it should be pertinent to implement these suggestions to mean the difference between success or failure for an organization in today’s cut-throat business environment. We will also post proposals to eliminate 20 percent and 30 percent of Costs.
WHAT WE CAN DO TO HELP
We at HMAS can help you evaluate your business model and tailor-made recommendations that will ensure your survival and growth in the economy.