Reduced spending by an analytical approach

Posted by Marconi Rocha
at Monday September 11th, 2017.

We are already at least three years in this world of weak economic performance scenario, affected largely by the cooling of the European economy. The direct reflection of the economy in the corporate world can be seen by significant reductions in growth rates, but of descréscimo of once booming sectors. Translated into the financial language of business, we are talking about falling revenues (sales).

The formula for the profit of a company, in a very simplified way, can be understood as Profit = Revenue – Costs – Costs. If revenue is falling and the company needs the income to support the market (because if there is no profit, investors stopped investing in the company and begin to invest their capital in the financial market), the most direct performance variable to the company are your expenses (cost + expenses).

balança redução de gastos

Note that I am separating the concept of costs and expenses, an item that many managers still do not differentiate. Basically and again in a simplified way, costs are all costs directly related to the main proceedings of the company (in the case of a factory, for example, would be the expenses related to the production process) while expenses are the expenses related to the areas of support main process of the company, in addition to expenses related to the sales area. The term “spent” refers to a indistintivamente cost or expense.

But you may be wondering: why the need for separation between these two types of expenses? Because being of different natures, the approach for reduction must also be different.

It is very common in crisis scenarios, out of desperation, senior management requires a reduction of general expenses. Without specific analytical approach, the reduction of expenditures required may have even worse effects than existing crisis.

As clear examples of approaches disastrous resulting in a simplistic attitude are the widespread cuts staff: usually these processes is lost accumulated technical knowledge and people who actually were working and generating value for the company. A careful analysis could demonstrate by example that there are areas with excess personnel and areas with personnel missing, suggesting a reuse of people who would otherwise be exempt. Through a comparison with other units or related companies, an analysis could also show that the company has an uneven distribution between people crowded in support areas / people crowded in areas close of business, caused, for example, deficiencies in processes Management or even an inefficient ERP. An efficient analysis could also demonstrate a historic increase in the amount of overtime performed due to a temporary increase in demand. Would not it be more advantageous to hire temporary in this period, for example?

mãos redução de gastos

Another point of extreme importance in the understanding and development of an analytical approach to cost reduction is to understand that spending is always formed by the multiplication of two components: quantity and price. Example: accommodation expenses = x amount of daily average accommodation price. This separation is important because if we can not possibly work on reducing the amount of average daily made annually, we can get to work in the average price of hosting through actions such as agreements with hotel chains, establishment of booking patterns, readjustment requirements, etc. Usually a careful analysis will show opportunities both in price and quantity vectors, multiplying the potential savings.

A detailed analysis of expenditures will require a thorough understanding of all types of spending, separated by similarity (the concept of financial accounts) and for each type, fully understand its nature and its components. Many organizations will be surprised to learn that the problem is not overstaffed but lack in small daily actions that generate unnecessary use of company resources and the environment.

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Finally, it should be understood that regardless of any existing crisis scenario, the question of cost-cutting in the enterprise should be included and stimulated constantly in the company culture (I mean the company indistintivamente the private or public sector) so that everyone is thinking at all times, on how to generate more using fewer resources. To avoid exaggeration, should always be done in a very analytical way and be adopted almost like an obsession. Only in this way will have an efficient organization, sustainable and showing genuine interest in the nation’s future. This is perhaps the most difficult part of being implemented because culture must come from a strong leader and not having the stress scenario as a stimulus, the natural tendency of accommodation of human beings will always give the impression that “spend this little bit more this time good will do some damage. “How would an old friend: “expenditure is as nail: if you are not cutting will grow again.”

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3 thoughts on “Reduced spending by an analytical approach”

  1. Claver Vilela says:

    Excelente abordagem. Pena que os empresários preferem aderir ao que Ladislaw (falhou o sobrenome) chamou de “crise das soluções universais” e recorrem a pragmatismos que não têm mais lugar neste mercado. Em essencia: são inertes.

    1. Sem dúvida Claver. O mais comum é encontrarmos nas organizações pessoas adeptas de simplismos que, ao não conseguirem entender o correto funcionamento dos processos, acabam procurando a solução somente na superfície. Quando funcionam, tudo vai bem, mas quando a solução exige um pouco de complexidade, simplesmente não conseguem resolver devido ao bloqueio em seu modelo mental ou mesmo incapacidade técnica.
      Obrigado pela valiosa contribuição.

    2. By the way: Ladislau Dowbor.

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