Sensible COVID-19 cost management
When times are tough, many businesses Indiscriminately slash costs, without thinking about long-term consequences. It can be especially tempting to reduce the business’ headcount given wages are often a company’s greatest expense.
This can be a false economy, as firms will need their best people when economic conditions turn, and a recovery phase begins. There are many ways to reduce costs now, so the business is in the best possible shape to survive these challenging times and be positioned for growth down the track
“Assets that are not helping to produce profit can be sold, repurposed or retired
Don’t slash, right-size
Morris Miselowski is a business futurist and strategist. He says successfully navigating the current climate is more about right sizing than arbitrarily eliminating expenses.
“Severe cost cutting is too aggressive. A better approach is to truly understand the business and what it’s trying to achieve, making sure it has the resources to do this,” he says.
It’s essential to manage human resources costs during a downturn. But this does not mean letting people go just to reduce overheads.
“In my model, 60 per cent of the business should be conducted by current staff. They should have the skill set to take care of day-to-day operations and get most things done,” says Miselowski.
“An itinerant workforce should undertake the other 40 per cent of the firm’s activities, drawing on the gig economy. These are people who can be brought into the business on an as-needed basis. But they don’t necessarily have to be full-time staff,” he explains.
It’s also important to take advantage of all the government incentives available, for instance the JobKeeper scheme. This is an initiative that pays $1,500 a fortnight to employees of businesses that have been severely affected by restrictions in place as a result of the coronavirus pandemic, as long as they keep staff on during the crisis and beyond.
“Apply for everything the business is entitled to,” says Maini Homer, founder of business consultancy Tall Poppies Rising. Homer says another idea is to encourage staff to take any leave they are owed now while the business is quiet.
“Do your best to create a win/win situation. Because you want to maintain good relationships with staff now and in the future when the pandemic has passed.”
A new approach to asset management
Miselowski says asset management is another area where businesses can right size their operations.
“Review all your physical assets and look at whether they are necessary for the business to achieve its purpose,” he says. Assets that are not helping to produce profit can be sold, repurposed or retired.
Taking charge of expenses
Expense management is another area where many firms can reduce costs. But it’s important not to cut so close to the bone the company doesn’t have the resources it needs to do profitable work. Insurance is one area where cutting corners doesn’t pay off.
Risk is high now, so now’s the time to choose well-known insurers who have a good track record. This helps ensure the process will be as efficient as possible if you do need to make a claim.
There are, however, other areas in a business where lower-cost providers can perform the same or similar service as an incumbent without any adverse effect.
“Researching your options when procuring goods and services can result in significant cost savings,” says Homer.It’s also worth asking for short-term fee reductions where possible. You may be able to negotiate with suppliers to drop their costs for the next six months; on the understanding you will continue to buy from them long-term with the potential for them to raise their prices once more normal economic conditions return.
Ultimately, you want to ensure your business is corona-proof now and into the future. See this as a chance to strengthen your operations to withstand any future shocks and pursue new business opportunities as they arise.
reprinted from <a href=”https://news.feedsy.info/sensible-cost-management-during-challenging-times/”>https://news.feedsy.info/sensible-cost-management-during-challenging-times/</a>
Frequently Asked Questions
Q: What is the most common cost management mistake during a crisis?
Cutting indiscriminately based on visibility rather than strategic value. The costs that are easiest to cut — marketing, learning and development, innovation budgets — are often the capabilities most needed for recovery. The costs that are hardest to cut — structural overheads, fixed assets — often represent the least strategic value.
Q: How should leaders think about cost management under genuine uncertainty?
By distinguishing between costs that maintain strategic capability (protect these) and costs that represent the legacy of the pre-crisis model (release these). This requires honest assessment of which capabilities will matter in the environment you are moving toward, not the one you are leaving.
Q: What costs should be protected even in a severe crisis?
The people and relationships that will be hardest to rebuild. The knowledge and capabilities that took years to develop. The trust with customers and partners that is the foundation of recovery. These are often invisible in a financial model but represent genuine organisational capital.
Q: Can Morris Misel advise on strategic decision-making during uncertainty and crisis?
Yes. For advisory, workshops, and keynotes on crisis strategy and leadership, visit morrismisel.com/event-organisers.
Article: A guide to what not to slash and burn in a COVID business world – cost cutting made sensible .
When signals like Sensible COVID-19 cost management emerge, organisations that engage early have the advantage of choosing their response rather than reacting to events. That gap between those who prepared and those who did not is where competitive positioning is actually made or lost.
The most important question is not whether Sensible COVID-19 cost management will matter, but how quickly it will matter in your specific context. Leaders benefit most from mapping the ripple effects early — not just the direct impact but the second and third-order consequences that arrive later and hit harder. That is the practical work of foresight.
