The real cost of budget cuts by Margo Manning, MD of Bute Coaching on 04-Nov-2011

T he latest figures from the Office for National Statistics (ONS) for September show that UK retail sales rose by 0.6%.

For me, this begs the question ... are we now buying again because we had put ourselves on such a big spend diet? Obviously, these statistics refer to consumer shopping, although it did get me thinking about how a spend diet would affect the workplace.

The great money diet ...

When we (or the business) decide to cut our budget we know the procedure. We are tasked with the job of reducing costs by X%. When this is departmental, we tend to look at headcount. When it is companywide, we may look at headcount and our additional expenditure. We might look at stationery, Christmas parties, evening jollies, training, employee benefits, changes to new employee contracts ... and so the list goes on.

When working at Goldman Sachs several years ago, the daily fruit boxes stopped appearing, in fact, overnight they just ceased! Of course, in that environment there was also the annual headcount cull which occurred in the good times as well as the bad times ... a hazard of working in that sector. Whilst going through the cost cutting exercise of the fruit boxes or the stationery cuts, we believe or hope that this will save some heads. And it probably does. However, what are the true costs of our diet?

The fallout ...

As we cut costs and more probably headcount, what does this mean to our business? Demoralised staff, less productivity, staff churn, in-house squabbling, managers upset that the staff are not grateful for having a job ... and again the list goes on.

What does this mean to our customers?

Regardless of our Managers call of 'business as usual' it isn’t going to happen. Why not? Because when we have demoralised staff it impacts the customer. Our customers start to receive a less than expected service. A lot of our staff will have disengaged with the company emotionally and, in some cases physically, calling in sick, turning up late. A lot will have started to look elsewhere for a new job believing the grass is greener.

This is to be expected and, of course, you can ride it out and hope for the best. And at the end of day, we have made our X% savings.

However, did we take into account the true cost of our diet? Our lost customers who have gone elsewhere for a better service, the costs of recruitment (even when not using agencies), the dip in productivity etc. And so our bottom line takes an additional negative hit.

However "it’s ok, we met our quota of reducing our budget by X%". Is it? Surely there have to be easier ways of carrying out this whole budget cut and preparing for the fallout? Looking at better communication within the company can be a simple and yet a great solution. A Change Management plan that has clear objectives and clear communication channels can help with some many business issues, even the whole process of budget savings.

Here are my five top 'change management' tips to help your business when looking to make budget savings:

1. Consider the hidden costs of budget savings.
2. Treat your staff like adults and engage them in the process from the start.
3. Have a clear and transparent process.
4. Consider future changes: a clear aim should be to minimise the fallout from budget cuts and only carry this out when necessary and not often or as an on-going process.
5. Think outside of the box.

For further information, contact Margo on 08700 420864 or visit:
www.butecoachingltd.com
or e-mail: margo.manning@butecoachingltd.com

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