So far, I’ve been talking about cost control as it relates to your budget. Right after cost control in importance comes cost reduction, particularly in tight economic times. As a manager, you may be asked to find ways to help your company save money.
At the very least, you may be asked to find out where expenses are leaking through the controls and to plug them immediately. For instance, financial records may show that for several months you have relied on overtime to make scheduled deliveries. Senior management might now tell you to plug that leak by developing better schedules.
Sometimes, you may be asked to postpone spending. Deferred maintenance work is the most common of these postponed costs. A machine that is not lubricated today may need a new bearing tomorrow, but the company’s cash flow may be such that there isn’t enough money to consider the long-term implications of the short-term decision. You may be asked to restrict your spending to necessities. Worse still, you may be told to do without, which could mean scuttling hiring plans or cutting talented employees.
Fortunately, while cost reduction is sometimes euphemistically called “cost improvement,” you can avoid the impact that belt-tightening programs might have on department morale by finding opportunities to improve fiscal management. Rather than cut costs, sit down with your staff members to identify how your unit can spend more wisely. Your workers probably know more about the ins and outs of the job than you. You can hold a problem-solving meeting in which you solicit ideas for cutting production corners or for reducing waste. As a group, your unit also may come up with ways to step up the amount of work done, thereby reducing unit costs and helping your organization achieve a competitive advantage with lower prices.
Because cost reduction or even “cost improvement” efforts can raise employee concern about job security, you may want to talk to your employees about costs in a manner that will cut through employee resistance and build support for identifying opportunities for savings. Explain the situation to your employees in terms they can understand. For instance: “Sales have fallen off by 50 percent. Last quarter, we processed 10,000 forms; this quarter our schedule calls for only half as many to be handled.” Next, set specific goals. Don’t just tell the staff that the unit has to cut costs to the bone.
If you have a specific program in mind, let your employees know the goal you have in mind. Let’s assume that one of your staff members, Myrna, has retired, bringing your staff down to five employees. You had planned to replace Myrna. However, now you have decided to reorganize the work to get keyboarding tasks done by your current five employees. “I’ve decided not to replace Myrna,” you can tell your staff. “So we need to come up with methods to get the work done with one less person.”
Let your employees know that you need their help—and that means more than cooperation. Tell them you need their thoughts and will welcome their suggestions. The reasons for cutbacks in expenditures should be explained, of course. Unless you can sell cost improvement to your employees, they are likely to be indifferent at best, rebellious at worst.
Tips
- Learn from each year’s budget so that next year’s budget is more accurate.
- Only spend time on those variances that you can do something about.
- Once you have identified the reason for a variance, take action.
- Focus action plans on the root of a variance problem.
- Keep in mind that some things just happen—not all variances have a logical basis.
Once you come up with some action steps to reduce costs, monitor the results.
If your unit can influence sales, a similar effort should be undertaken to identify new opportunities for revenue, and actions should be taken to implement these ideas.
Just as you have controls to manage your plans and budget, you need to monitor progress on your cost improvement efforts. You should also keep your manager alerted to your unit’s efforts to cut costs, to increase revenue, or both.