Budget Cuts: Cut Your Headcount or Improve Your Processes
“It is not necessary to change. Survival is not mandatory.”
– Edwards Deming
Budget cuts. Lay-offs. Resource restrictions. Fiscal restraint.
We hear it again and again.
As a manager, how are you going to meet these financial requirements? If your organization is like most, you are likely considering a workforce reduction – and will probably work through a scenario that looks something like this:
- Freeze current and upcoming projects.
- Analyze to see which projects or activities (e.g. admin) can be reduced or completely cut.
- Reduce the number of employees, usually starting with contract staff.
- Manage the reduction in workforce (and deal with all of the associated issues that will accompany this activity).
- Stabilize the organization.
- Re-grow the organization as and when the opportunity and climate changes to make this possible.
A Better Question
The requirements can vary, but in the current climate many organizations are looking at future budget cuts of between 5% and 15%.
The question: why is everyone’s first reaction to reduce staff? Is it because that is the largest line item on the expense ledger? Is it habit?
A better question: are there any other options that can be taken before resorting to this highly disruptive – both organizationally and emotionally – activity?
Non Value Add Activity
Through experience I have come to realize that a large percentage - typically greater than 50% - of an organization’s activities can be classified as “non value add activity” (NVA).
This is independent of public or private, large or small. NVA are simply activities that ultimately do not contribute to the goals and objectives of an organization. Very typical examples include:
- Multiple sign off for purchase orders
- Double, triple or quadruple checking work
- Producing reports that are never read or used to make any decisions
- Running meetings that never define follow up actions or are simply grandstands to vent issues
- Adding tasks to projects that don’t contribute to the project goals
- Looking for information that is not easily accessible
- Continuous state of firefighting
I could go on and on – the point being that a huge cost saving opportunity is sitting in every organization as process improvement, yet we still look to reduce staff levels rather than tackle it!
10% Is Easy
Over the last 15 years I have realized the following in terms of effort:
- 10% savings is an easy hit and relatively quick to do as long as the organization is focused and committed.
- 20% savings requires some level of system integration, and requires time and effort - but is still relatively straightforward.
- > 30% savings is difficult (but rewarding) and can be considered world class for most organizations.
Heads Are Easy to Count
So why do most organizations choose to reduce their workforce rather than improve processes? From experience, I believe the following reasons to be true:
- Savings due to process improvement can be hard to articulate – savings due to reduced headcount are easy.
- There is an initial spike in effort (and therefore spend) to initiate process mapping activity – this puts management off the idea.
- A percentage of staff needs to be temporarily re-allocated to perform process mapping activity – this can be difficult to justify
- Rapid and decisive decisions need to be made to implement improvement activities – this can be difficult, especially in a public sector environment.
- Employees need to be empowered to make small changes that accumulate to make a significant impact – again, this is typically not the case in most organizations.
- The process mapping activity cannot be haphazard, there must be an investment in training, mentoring and facilitation – this runs contrary to the upcoming budget cuts.
- There is a lack of understanding around the benefits of process mapping at all levels in an organization.
Cutting Heads Doesn’t Improve Anything
Again, I could go on, but the above points are typically enough to stop process mapping activity as an approach to budget reduction. However, if you do choose to implement a robust process mapping strategy you will likely see the following:
- A relatively quick – usually a matter of months – ONGOING reduction of 5% to 15% in operating costs.
- Increased repeatability of the output of the processes, resulting in increased customer – both internal and external – satisfaction.
- Reduction in risk as non-essential steps have been removed, therefore reducing the number of opportunities where mistakes can be made.
- Increased employee satisfaction in a difficult climate.
- Improved level of documentation.
- Capturing of the embedded knowledge of your employees.
- Improved vertical and horizontal communication.
- Integration with root cause analysis and risk management activities.
The challenge is simple; when you have to reduce costs, take a good look at your processes first.
By keeping your staff intact, you can deliver your key projects with minimal disruption, maintain capacity, maintain embedded knowledge, improve customer satisfaction, and improve employee engagement.
Need help finding the easy wins in your business processes?
Delta Partners provides training in Process Management that will help your people help themselves.