Managing Cost

6 Ways to Use Money and Assets Effectively

Andrew Cooke Cost, Managing Cost ,

Six ways to use money and assets effectively

When times are hard, and business is slower, harder to get, and less certain, many companies engage in slashing costs.  And they go for that which is most visible and easiest to slash first – the payroll.  However, reducing staff numbers incurs considerable expenses – you have to pay people out, you lose goodwill both with those who are let go and with those who survive the purge, and your capacity and capabilities are reduced – all at the time you need these things most!

An article of the same name by Tom Copeland appeared in the September/October 2000 issue of the Harvard Business Review.  This gives excellent ideas and insights into how companies can cut costs, without having to lay-off experienced staff with the attendant costs.

  • How is your capital budget spent? Often over 80% of most companies’ capital budgets are made up of small items that get rubber-stamped in the budget process. Much of this, is unnecessary gold-plating or even redundant because it merely duplicates spending elsewhere in the organization.

There is a great story about a telecom company that buried its cables at a depth of two meters. When asked why it was necessary to dig so deeply, managers replied that only at that depth would the cable be protected from a thermonuclear explosion. After reflecting on the bomb’s likely impact on customers, the company cut its cable depth to a meter, saving itself $80 million a year as a result.

  • Be frugal, not cheap – when looking at small-cost items you can save substantial amounts over time.  However, do not look to buy cheaply, you will often find this will cost more over time.
  • Is each piece of capital expenditure necessary?  You need to be clear here on what specific needs it will fill; the specific problems it will solve; and how much will it save in terms of resources, both hours and dollars?
  • Eliminate all redundant purchases. Within certain discretionary limits, many people are often authorized to purchase the same items. Look at how you can consolidate these purchases to eliminate duplications.
  • Determine precisely what the total cost is. Price is only one part of the total cost. By viewing your purchases as investments, and including the total costs of ownership for the lifetime of the assets, you can determine the ROI of each capital asset purchase.
  • Maximize the use of shared assets. Look at who is using these assets and how over time.  Where are the assets which are being underutilized or overutilized?  What are the options for handling assets in these areas?
  • Look at your capital expenditure.  Where and how are you spending your capital budget?  When answering these questions what are the potential savings you can make without having to lay off people? Can you cut costs without drawing blood?

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3 Factors for Building Resilience

Andrew Cooke Business Agility, Business Growth, Change, Continuous Improvement, Employees, Growth and Profit Solutions, Leadership, Management, Managing Cost, Performance, Strategies, Uncategorized

How to assess and develop your organization’s resilience.

Resilience

*by Andrew Cooke, Growth & Profit Solutions

Resilience – a word more often abused than used correctly.  Resilience often is used to describe strength.   Although strength is implied in resilience, it is actually not a trait (a distinguishing quality) – rather it is a capability, something that can be used.

There are two definitions for resilience that can be used here:

  • “the capability of a strained body to recover its size and shape after deformation caused especially by compressive stress”
  • “an ability to recover from or adjust easily to misfortune or change”

The Three Factors of Resilience

Resilience relies on three factors:

  1. Flexibility – how flexible is your business in terms of how it works, how it is structured and how it is organized in producing the same outcome result?
  2. Adaptability – how can you apply what you do and how you do it to produce different outcomes or results.
  3. Learning – how good is your business, at an  individual and corporate level, in learning the lessons from having to adapt or be flexible so that you can avoid repeating them (hard , painful lessons) or you can leverage them in the future (where you have had success) and understanding why you were successful or not.3 Factors for Resiliency - Overview

Flexibility Factors

  • Elasticity – can you easily expand or contract the business in whole or part
  • Alternatives – are there many ways in which you can achieve the same result, or are you locked in to one or only a few ways?
  • Interchangeable – how easy can different building blocks (people, assets, processes) be used in a different sequence and/or configuration to produce the same result or outcome?

Adaptability Factors

  • Reusability – can your core people, processes and assets be used to produce different outcomes and results with little or no difficulty?  For example, a consulting firm can reuse many of its existing people, processes and assets in delivering a new service.  However, the Boeing factory production line can only produce Boeing airplanes – it cannot produce other products without significant changes in people, assets and processes.
  • Speed – how quickly can you move from producing one set of products and outcomes, to produce new products and outcomes?
  • Capacity for Change – how prepared and able are your people to make the necessary changes? 

Learning Factors

  • Measuring – how good are you at being able to quantify or qualify the changes that have occurred, their implications and the associated outcomes?  Are you able to identify where the greatest impact, positive or negative, has been realized?
  • Applying  – can you clearly ascertain as to where the lessons learnt can be applied?  Do you understand what caused the problem and how it was solved, or where and how the opportunity was capitalized on?
  • Anticipating – how good are you at being able to replicate or avoid the lessons learnt?  For example, if you are an engineering consultancy who tried to enter a new market unsuccessfully then can you identify why?  Was it the lack of a local partner?  Cultural differences? Inability to deliver?

These 3 factors apply equally to the individual as to the business.  For real success you need resilience both personally and corporately – if you lack the resilience you may not survive the change, even if the business does.

Resilience is not about just meeting the current challenge, or having met the challenge just past, but it is about putting yourself in a better position for the future – not just going back to your original shape or form before the challenge occurred.  To be resilient you need to be flexible, adaptable and to learn from your experiences.

Two out of Three Ain’t Bad – But It’s Not Enough

So what does it mean if you only have two out of three, let’s see below.

  1. Flexibility & Adaptability – you can meet the challenge in the short- or even mid-term, but your inability to learn from your experience and apply will mean that you will be overtaken by the competition and quickly become irrelevant
  2. Adaptability & Learning – you can diversify into other areas, but you are not at the forefront of your market being weak at delivering in alternative ways.  You are at risk of being out-maneuvered by competitors and being a market follower rather than a leader.
  3. Learning & Flexibility – you are efficient at operating in your particular niche, but you are a one-trick pony, and you are at the whim of industry pressures.  You are more reactive than proactive, and your ability to become diverse, grow and spread the risk is weak.

For each of the 3 factors, and for each of the 3 components for each factor, how do you rate yourself?  Score yourself out of 10 for each component (1= Very Low, 10=Very High), and rate how strong or weak you are in each factor and relatively.

Resilience Worksheet

Which are your strongest and weakest areas?  How can you leverage your strengths to offset your weaker areas and reduce the associated risks and implications?  Are you really as resilient as you thought?

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