5 signs they don’t have a clue about cost control

It seems like a goal any red-blooded CFO would find tough to argue with: reduce the company’s costs. Unless people are going about it the wrong way.

These days you’d be hard pressed to find an organization that doesn’t have “lower expenses” at the top of its priority list.

But how confident are you that everyone in your company is going about it the right way?

If folks are simply taking a hatchet to expenses, it’ll cost you a lot more in the long run.

Here’s what you need to watch out for:

1. They’re being set up to make bad choices

The first thing to look at when undertaking any cost-cutting initiative is how prepared the people charged with the task are to carry it out.

A few key questions worth asking yourself:

• Are we setting too strict or too lofty a goal? Tell the manager to shave 10% off their departmental budgets, and people will feel they’re being forced to make reckless cuts to meet that magic number.
• Does too much ride on it? Sure, it’s smart to tie bonuses and other incentives to cost control. But in tight times like these, people may be struggling personally with their finances, which again, may cloud their judgment when figuring out how to earn that entire bonus.
• Do they have any financial knowledge? Many non-financial supervisors may have never even laid eyes on a balance sheet before. There are plenty of “Finance for Non-Financial Professionals” seminars out there. But even a mini-version you or other finance staffers run in-house could go a long way.

2. They expect someone else to do it

Passing the buck to save your company some bucks is not the best route to take.

Be concerned if you see people relying heavily on outsourcing, when the primary goal is to do something cheaper, rather than smarter.

The other red flag? When people look to IT to solve it all. Proposing sweeping tech changes that require big money spent up front may be a sign someone’s off target.

3. They think short-term only

On the flip-side, if the cuts a given department is proposing don’t seem sustainable, that also needs to be addressed ASAP.

Emphasize from the get-go that the cuts made today should hold next month, next quarter, next year.

4. They simply impose the cuts

It’s tough to get buy-in for any initiatives when staffers feel like they’re being thrust on them.

Encourage managers to let ideas bubble up via suggestion boxes, etc.

Even if someone has an idea, try putting it out to everyone for how to go about making it happen.

5. They can’t quantify the savings

If the manager or employee has no idea how much your company stands to save, he or she may not have a very good idea just what goes into that expense.

Push for hard dollar results.