If you’re a CFO or department head, you’re likely dealing with budget cuts while continually seeking improvements in the efficiency and effectiveness of your organization. That process involves difficult decisions that may include personnel changes or other cost cuts that affect the quality of your work product and, oftentimes, morale within your organization.
There are ways to improve your bottom line or minimize rising expenses year over year that have minimal effect on your operations. However, many managers are reluctant to address these areas because they classify them as needs in their minds. Additionally, there may be a general lack of understanding of the expense category, and because of this, you are unwilling to challenge the status quo. Thus, they continue to perpetuate the artificially high spending level by applying an inflation rate to the prior year’s expected spending level and move on without a second thought.
An excellent example of one of these expense categories is the telephone. In all likelihood, you’re not realizing the maximum impact of controlling your phone bill. Typically, the responsible party in most companies is a procurement agent who will periodically solicit proposals from vendors who provide these services. They rely on competition among providers to keep the cost structure within reason. This assumes that whatever you are currently paying for, you need! In most cases, this is not the case, but it is not addressed in the proposal process. Keep in mind that all of these providers are trying to maximize their profits. Additionally, you may think that the vendors representing these organizations are on your side, understand your needs, and make sure you get exactly what you need without providing excessive equipment or services. But the fact is that these people make their living from the commissions they receive for selling you more.
There are companies that specialize in controlling these costs. They understand the structure and composition of the service and offer their services at no incremental cost to your business. They perform the service based on a savings contingency and are paid through a portion of the total savings they generate. In general, these organizations have been able to generate net savings in the range of 25% to 35% of total spending. Once the new spending base level is reached, it benefits not only the current year but future years as well. I’m sure you got that call from the telemarketer who offers these services. You don’t respond positively to them because you don’t understand the services they offer. You also rationalize that you offer these spend categories or that someone else is responsible for the line item. Worst of all, you don’t want to be bothered with more responsibilities or perhaps judged for previous spending levels that were too high.
Another problem is that you don’t see these savings the way you should and don’t focus on the fact that once made, the savings continue year after year. Yes, you must compensate the company that realized the cost reduction savings by paying its share of the gross savings over multiple years. But on the other hand, if you ignore the opportunity, there is no reduction in the level of total spending in the first place. That means your costs continue to rise based on an artificially inflated base cost. Nothing risked, nothing gained.
There are other areas that offer similar opportunities… Energy, transportation, waste management and potential copy costs. Experts are also available here who can help you with the review process. In most cases, they are also compensated for the gross savings they make for you. All of these companies try to minimize the workload on you and your staff while maximizing total profit. Indeed, these experts are priceless, so don’t pass up the opportunity on the grounds that you’ll have to pay them for years to come… your base cost has really dropped.
So don’t leave it to someone else! Be a starter! Get the benefit of true cost reduction with minimal effort and no moral strain. For a list of companies that provide these services, please contact me at the email address below.