adminItai Mabasa Bopoto
Cost/loss reduction, as we present it, is a culture, a way of thinking, it is changing the mindset.
There are many organizational survival techniques and strategies during difficult economic times namely, price increases, introduction of new products, restructuring, retrenchments etc.
The main objective of this article is to look at Cost/Loss Reduction as an organizational survival strategy during business and economic dips. What are the fundamental differences between cost cutting and cost/loss reduction?
What is Cost/cutting?
Briefly, it involves looking at all expenses, the huge ones are looked at closely and cut as the term implies. These may include salaries, benefits, travel, subsistence and rentals. Let us look at salaries account, I would like to remind you, once again the practitioners look at the figures. Just as an example, $ 500,000.00 per month. If it is large enough, of course it depends on the organization, working hours are reduced, retrenchments, early / voluntary and compulsory retirement become the order of the day.
Cost cutting measures are a very good starting point of identifying expenses and reducing costs, if done properly.
The hidden costs/losses and opportunity costs are not shocking.
But Alas! There will be pockets of bitterness, resentments, alleged unfairness, inadequate compensation and lack of transparency whether perceived or not. There is nothing very wrong with this common, easy to adopt and very simplistic approach to business survival strategy. In many cases, it is based on traditional accounting figures.
What is costs/loss reduction?
Cost/loss reduction, as we present it, is a culture, a way of thinking, it is changing the mindset, and it is a philosophy that is instilled in staff members. It runs and permeates from the highest levels to the most junior member of staff. There is no exception.
Instead of using one element, traditional accounting figures it also includes hidden and opportunity costs/losses. It creates a bond, sense of common objectives, allow all organizational members to share common vision and unity of purpose. This is not the time of them-managers and we workers.It is an ongoing technique that all members of staff can apply on a daily basis as they perform their daily duties.Organizations may acquire the latest equipment, technology, bright spark staff members…etc yet fail to attain organizational objectives.
What you need is to change the way your staff think and their attitude towards work.Many directors, managers, supervisors, entrepreneurs and participants have asked me the above question before each workshop commences.“They argue and assert full throttle. They have already done it. We have cut costs!” In my mind’s eye, I know where they will be coming from; they would be referring to Traditional Financial Accounting Costs, which are just a tip of the Ice Berg of the total losses in an organization. In most cases, hidden and opportunity costs/losses may not be taken into account.
The best strategy is to arm and equip your staff to the teeth with techniques and strategies of reducing costs/losses. They will tell you a different story, a different pattern of looking at costs/losses emerges. It is a holistic approach that embraces hidden costs/losses and economic costs. The later are at times referred to as opportunity costs. These terms will be explained at a later stage.
Cost/loss reduction as we present it, is a polished and soft strategy, a well -designed, calculated diplomatic move, it appeals psychologically to all organizational members.
It minimizes upheavals, animosities, misunderstandings, stress and huge expenses…sociated with costs cutting techniques.
What my eyes have seen, my ears have heard, empirical evidence and down to earth first hand testimonials of some victims of costs/cutting, the exercise is infested with numerous hidden and opportunity costs/losses.
Talk to those who have been retrenched, it is always a very sad and pathetic experience.
To those who have remained at the work place, it is a mixture of joy and sadness. They have the joy of at least earning a salary and the misery of being overworked, reduced benefits, demanding bosses and customers.
At this point, I will aptly bring in an important aspect of costs/loss reduction concept. It is the identification of hidden costs/losses by every worker while undertaking their daily tasks. Quantification of these hidden costs/losses in dollars will enable every worker to appreciate the cost of mistakes or any wrong doing at the work place. The hidden costs may be driven by internal or external forces.
Identifying these forces by your own staff is an in house process and can be very secretive, at least in the short term. Problem identification and the shared solutions by the workers themselves becomes an organizational culture. The fact that workers themselves, at their own accord, convey the culture to new recruits with none or minimal guidance by management will solve many organizational problems.
The following formula is applied in connection with the concept of Costs/Loss Reduction
Traditional Accounting Costs + Hidden Costs+ Opportunity Costs= Total Costs/Losses.
The beauty with this approach is that organizations can start identifying the hidden costs/losses and the appropriate solutions with minimum resources. The only equipment you need is a pen and a hard covered booklet. There is no need to wait for accounting figures showing all those expenses.
The writer, Itai Mabasa Bopoto is a business economist and holds a BBS, UZ (1982) MBA, UZ (1987). He can be contacted on [email protected] (Zim) [email protected](Namibia) or tel +263 4 498355 Mobile +263 779738426 (Zimbabwe)
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