WHEN YOU HAVE TO CUT COSTS ? NOW! Part 2
PART 2
In our previous article, we discussed the importance of cutting costs in the market and how cost-cutting is to be implemented to achieve at least a 10 percent cost reduction in surplus costs.
However, in some businesses, it is apparent that 10 percent of cost reduction is not going to cut it. Maybe the market is going through a severe downturn, or the company’s primary business is now obsolete. Maybe even, as the recent situation in 2020 was, there is a catastrophe on a global scale.
Getting to 20% – Redesign Ideas
Whatever the situation is, a cost reduction of 20 to 30 percent is certainly possible. However, it should be noted that it is mostly impossible to remove 20 percent of the total costs incurred without undertaking a significant redesign in the workflows of a business or an organizational department. Keep in mind that its rarely a good idea to do the same work with 20 percent fewer people.
When eliminating costs to this extent, it should come as no surprise that any work should be eliminated for which cost exceeds the value. But it should be kept in mind that there is still value that is being cut. The first step can be to combine opportunities to reduce the workload and redistribute the workload to remaining positions available.
To eliminate work effectively, rethink your department in three ways.
Communication with Counterparties
In the case of a business department providing in house service to the Companies’ other departments, it’s a good idea to evaluate your workload about those departments. Is the role in providing necessary information to those other groups? Do their deadlines exacerbate your workloads?
If so, then the cost has a considerable chance of exceeding value, because the department requiring the work is not directly bearing the cost of the work. To ensure that the cost you are incurring is justified, the efforts made by your department should be disaggregated and then verified if each effort is justified. This approach, though time-consuming, can reveal many opportunities.
ELIMINATING LIAISONS AND COORDINATORS
Liaisons and Coordinators were created to assume that two or more groups performing different tasks would not be able to understand each other’s work well enough to carry out adequate communication. However, in today’s work environment, this is mostly not the case. The position of Coordinators and Liaisons is mostly important to organizations whose operations are spread out around the globe. For companies and interworking departments which exist close by, their need does not exist.
REDUCING EXCESSIVE SERVICE LEVELS
Excessive Service Levels create a significant problem in the process of cutting costs in a business. There has been an instance in our experience where a full-time staff was hired to sift through daily reports and manually highlight any variances encountered even after the fact that many of the variances had been rendered useless due to a systems overhaul.
CHANGE THE PROCESS
The administrative process can become frozen over time and thus may cease to become effective or efficient. Evaluation of the following four business areas will help one to understand whether this has occurred and implemented any changes that may be necessary.
It reduced Business Requirements. There is a need to evaluate whether the business requirements have been changed or not. Perhaps the requirement for certain data does not exist anymore. Evaluate if there is a need to redesign the process or not.
Manual Process. Is there any process that needs to be processed repetitively, rather than electronically with little or no human intervention?
Exceptions to the Norm. Do the routine 90 percent items cost much less to handle than the exceptional 10 percent. Redesigning what constitutes as an exception can reduce the burden of the department.
Timing. Evaluate if shifting the timing of a certain task will benefit the cost-saving process or not.
Moving Away from Belt and Suspenders Mindset.
Normally managers are evaluated against no surprises standard. The managers who were considered better than normal were assessed against a no surprises standard. You need to evaluate if the functions in your department are involved in reviewing and reconciling information. These positions are a response from a time when there were significant problems in the data or variances. Even as processes are more and more standardized and computerized, the chances of errors are reduced, these functions remain causing a significant drain to the company’s funds. Consider if the Department or the Company’s review function can be moved to areas that are high priority or high stake.
Getting to 30% or More: Cross-Department and Program Elimination Ideas
It is highly unlikely that one will find cost saving of 30 percent or more of the existing funds solely within the same department or executing the same programs as before. Contrary to this, it is extremely surprising how much savings can be made by evaluating how a department fits in with other departments of the organization. So, if the goal is to reduce 30 percent or more of the costs, a broader understanding of the organization must occur.
COORDINATE PARALLEL ACTIVITIES
Many departments in a business carry on functions that are similar or closely similar. In such a scenario, an assessment can be carried out to save costs. An example is the purchase of supplies. Most departments procure supplies on their schedule. If the procurement schedule of the departments can be combined, then the company can avail of the benefit of its purchasing power.
SHIFT THE BURDEN TO THE MOST EFFICIENT LOCATION
Of the complaints heard during the Annual Budgeting process, the most common is that a certain department budget could be reduced, but that department has budgeting constraints. Interestingly, when budgeting is taking place, that time is ideal for carrying out cross-department tradeoffs.
Another method of how this problem could be tackled is to outsource activities or workgroups. The case can be made as to whether the needs are so specialized that outsourcing them will not be sufficient; however, this evaluation must be carefully carried out.
Our experience, however, shows that outsourcing can significantly diminish the administrative burden on a company. It should be noted that any change in the organizational structure will be met with resistance. If an outsourcing contract is proposed, the company will most certainly cite security concerns and the burden of creating a contract. However, if several opportunities are presented, then simultaneously, organizations tend to be more willing to face the discomfort.
ELIMINATE DUPLICATED ANALYSIS
A problem we have discovered across many large organizations is that most departments are carrying on evaluating the same task from multiple angles [Sales, Marketing, Manufacturing], with each department working not in sync with other departments. In our experience, the most effective and efficient companies carry out such functions in a single coordinated effort. This function is handed over to a single department to be carried out. However, it should be noted that this department will require input from other departments at various stages of the evaluation.
ELIMINATE LOW-VALUE MEETINGS AND FORUMS
During one of our assessments, we came across a Company where the upper management was virtually unable to do any task approximately 20 percent of the time due to weekday meetings.
In this case, a cross-department assessment of the meetings can be carried out. The problematic meetings that serve no other purpose than touching base can be re-purposed, consolidated, or eliminated.
RESTRUCTURE OR CUT CROSS DEPARTMENT ACTIVITIES
If the goal is to reduce 30 percent or more of the costs incurred, an unorthodox approach must be taken regarding the reduction of cost. A professional services company for which we carried out the analysis, pride in having the most talented staff available, the time is taken by HR in hiring the staff to meet the criteria set forth did not justify the expenses incurred.
We determined that the six interviewers who were not skilled could be replaced by three interviewers who were more skilled with no change in the candidate’s eventual success. After the implementation of our recommendations, the firm’s performance and cost were reduced.
ELIMINATE PROGRAMS
If the required cost reduction cannot be managed, then another drastic step will be required to be taken. The step will be to remove programs and tasks being carried out by the departments. These will be programs that are the least valuable ones.
REDUCE THE BURDEN PLACED ON OTHERS
In the end, you should seek out openings to inquire from other departments how you are being overseen. A need to challenge assumptions will be required.
Conclusion
Cost reduction by these percentages is in no way an easy task. However, there is no need to lose hope. If a start is made today, enough ideas can be found to reach your goal.
Both experience and research can indicate that idea generation improves with time and is not a standalone task. It would help if you ensured that the goals you set for each repetition of the cost-cutting process are met in its entirety.
In most scenarios, we observe that when carrying out the unpleasant task of managing cost, the primary tendency is to say this is enough before it is met. You should understand that if an attitude such as this persists, the final goal will most certainly not be met.
What we can do to help
We at HMAS can help you evaluate your business model and provide tailor-made recommendations to ensure your survival and growth in the economy