Managing Costs the Right Way

by Krishna on April 3, 2007

Many companies do not pay enough attention to finances when they are growing rapidly and then do all the wrong things about controlling costs when the growth slows down. Usually many such cost cutting measures are counter-productive as they lower the morale of the organization. Often, the most talented employees quit first to leave for better pastures, thus sinking the company even further.

Here are a few suggestions to manage costs before and during slow times that may avoid such situations:

  1. Don’t go overboard during the good times: While it is good to enjoy when the money is rolling in, use moderation in creating benefits that cannot be sustained. People always feel entitled to existing incentives and plan their expenses around them. If you cannot sustain benefits, don’t create them in the first place.
  2. Keep your best people happy: When you lose any employee, the costs for finding a replacement and then training them to match the output of the previous employee is enormously high, even discounting opportunity losses. The cost is several times higher for the loss of the top people in your company, because if they leave, you lose not only money, but a piece of the accumulated knowledge and wisdom of the company.
  3. Spend significant time training people: Training should be focused on helping people do their job as effectively as possible with high levels of quality. The fewer mistakes made, the lesser the cost to the company.
  4. Pump more funds into proven productivity tools: This will ensure greater output (and revenue) per employee leading to greater profit margin. In an Information Technology environment, that means faster hardware, better software tools and comfortable working environment — aesthetics and ergonomics both.
  5. Reduce work interruptions: Avoid unnecessary meetings. Use project management tools that queue work items instead of creating interruptions. Enforce good documentation that reduces the need for personal help support. Hire people who can think for themselves.
  6. Provide telecommuting options: Is it better for employees to waste hours in traffic and spend tired hours in office? Or perhaps have them spend the same hours at home with greater motivation and energy, allowing them at the same time to maintain better work-life balance?
  7. Let the employees figure it out: When finance or human resources is given free reign to cut costs, usually they end up alienating employees throughout the organization. The problem is that they have no clue how development/production/support staff work and the cost cutting is in the wrong places and creates more problems. Let each project/department/branch come up with various options — they can differentiate between fat and muscle.

The whole point is: if you manage a business, don’t let the business get to a situation where you have to start using unpopular cost-cutting measures. Develop good business strategies — in fact, the business should try to make more money than it ever dreamed of making. Innovate and stay ahead of the market. Save the business for the people who helped build it in the first place.

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