One of my favourite quotes and one I always share with my teams is “Cost cutting will not get you into Heaven, but you will go to Hell if you don’t take care of them”.
I am a strong advocate of controlling costs, and this all starts with a great understanding of costs, if you don’t understand your costs, then how can you possibly control them.
Many times I have worked in companies where I was shocked that people had little clue regarding their costs, and what was the value they were getting for their money.
Their approach to managing them was, I have a budget of $100m and if I spend $99m all is good.
I have a very simple approach to managing costs, it’s something we can all do, and it doesn’t require an MBA or a Phd in Economics.
Simply, treat the money you manage – as if it were your own.
Imagine the money was yours and ask yourself, am I getting value for my money, would I spend my own money on this?
At one company I worked at, we were paying $1000 per day for a MS Excel Expert, when I asked the manager would he spend $1000 per day of his own money on such an expert, he said “hell no, I wouldn’t pay above $500”.
So why spend $1000 of your companies?
I always find it stunning people will spend others money at a price they would never pay themselves.
Many times I have heard people say, yeah my projects over budget but only by $50k, which isn’t that much really.
Every time I hear that I say “Cool, so your okay with us taking that from your salary then?”.
I always get the same response, “err no, thats a lot of money to me, I don’t have it, you can’t be serious”.
Of course I am not being serious, I am just trying to illustrate, that if we think of the money as our own, we would take much more care of it, we would have a much better understanding of it, and we would ensure we got the best value possible for the money.
Don’t our companies deserve the same care and attention?
If we can do this, then we can really get our costs under control.
One of the biggest advantages of understanding our costs and having them under control, is that when our boss wants an arbitrary 10% cut of costs towards the end of the quarter or year, then we can explain exactly how we will do that and what services or items we will have to give up.
When we don’t understand our costs or have them under control, our bosses can ask for a 10% cut and we have no clue whether its possible or not, or what we will have to give up to achieve the cut.
We many end up not being able to provide critical services or deliver urgent projects, but hey we won’t know.
When we treat the money as our own, our understanding our costs improves significantly, and so does our ability to manage them.
This will not get us into Heaven, but it will keep us out of cost cutting hell!