Whether in times of crisis or boom, every company should have a clear policy for the management and control of expenditure. Today the word crisis has become fashionable, it also appears the term “Cost Reduction,” which is no longer a requirement, but a requirement for responsible enterprises. As a cost-cutting approach, first, do not make the mistake of setting a percentage. “Reduction of 15 percent by department or area.” “Reduction of $ 150,000 for the entire company.” Following the expenditure is an activity that must be performed regularly, preferably every month and compared not only with the budget but with its trends and previous periods. This is one of the main responsibilities of Chief Financial Officer or Controller as the company has with these executives on its payroll.
The following technique will allow to pass the costs for filters to determine whether they can be subject to reduction: Needed: You must challenge each expense line and justify that this is necessary. Ask each leader and manager to justify the need to keep each item of expenditure. Strategy: Define if the expenditure is part of the strategy of the company or if the expenditure itself is a strategic tool to reach new customers, positioning the company or retain business. Paying attention to that can not be many strategic cost. Replaceable: You can replace this spending by another minor? can be replaced or consolidated with another area or another area? There may be substitutes or other options to this expense.
Postponed: your company can postpone this expenditure? So when and what effect will it have? Impact the quality of the product or service? also define how we affect in the short term. Summarized in NERP as needed initial, strategic, and postpones replaceable. If spending goes to evaluate these filters, leave current, otherwise we must proceed as quickly as possible to reduce or eliminate it. If you plan on spending cut will affect the business, then no need to reduce or eliminate it. A reduction that damages bases the business or its relationship with its customers or suppliers must be evaluated several times and documented well before making the decision. If a reduction of expenditure affects the medium-term strategy and the operation of the company, then it should not be subject to reduction but monitoring and achieving a “tie” for favorable results in sales, quality, service.
The reductions are painful, but should be performed. The most difficult issue is when we evaluate and we need to reduce payroll. Assess first if it can redeploy staff if you can reduce hours if you can put them in other companies, or may advance vacation. The human resource is where you have invested and can not forget the costs you have when you have to rehire. Because crises come and go, only the best companies survived- primarily those that take action at the right time.