First-class coach: managing budget cuts

How can I trim the budget by a quarter and deliver growth?

by Miranda Kennett
Last Updated: 12 Jul 2012

Q. My organisation has just decreed that every department has to cut budgets by 25% for the next financial year, while also delivering growth in revenue. My department is already run efficiently, with very little fat to trim in terms of people and processes, and I don't see any way of delivering this. I don't feel I can win: if I protest I will be seen as uncooperative and may lose my job. If I go along with these demands, we'll fail to deliver and I'll probably lose my job. Is there any way out of this?

Miranda Kennett: While world leaders debate on the macro economic level whether it is possible to have significant spending cuts and growth simultaneously, you are being asked to achieve this feat in the real world. And, unlike some overblown economies, your department is already lean and effective. No wonder you feel faced by an insoluble dilemma.

The mania for cutting costs evident during the recessions of the end of the last century became characterised as 'Austerity Binge', and this obsession seems prevalent today. It's almost as if we think a little purging and blood-letting will make us stronger, rather than weaken us, which is the more likely outcome. The real danger of this short-termism is the damage to future success.

You foresee job losses - now or later - as the only outcome to this dilemma. I wonder if there are more options? Your first step might be to have a quiet word with your boss, to point out that you've been prudent in the past, so there's very little you can cut, certainly not 25% worth. If you can back this up with figures that demonstrate the high ratio of output compared with staff numbers in relation to other departments or comparable competitors, so much the better. The reaction you get will help you decide whether there will be room for negotiation. If you don't make this case upfront, your boss will be entitled to think that the declared level of savings is feasible.

Another option could be for you to present two versions of next year's budget, one based on current levels of expenditure but clearly aimed at growth, the other at cost-saving, showing how this will not only stunt growth but probably erode current performance.

If discussions with your boss don't help, don't set your face against any savings, even if not at the 25% level. Consider all possibilities and ask your team to come up with ideas. The knee-jerk reaction is to cut marketing, training and/or R&D, all economies that militate against growth, but there may be other options. For example, is there someone who wants to work part-time? Is there a supplier that might agree to give you a bigger discount or another service provider that could provide a cheaper alternative? Would it be more cost-effective to outsource part of your production? If your fear is that the quality of output will suffer, could your department do fewer things?

Clients of mine, faced with similarly stringent demands, have sometimes been able to shift some items of expenditure to other budgets (local to regional, for example), so that the activity still takes place but it is no longer part of their accounts. Others have shared services with other parts of the business and so reduced head count.

Staff cuts appear to be a relatively easy way to make savings but when the costs of severance pay, loss of knowledge and experience, and future recruitment costs are taken into account, this option often proves to be a false economy.

In making your decision, focus on the things that your customers (external and internal) value and try to protect them. The danger of trying to have a foot on the accelerator and the brake pedal at once is that not only will you fail to move forward but that you'll damage the engine.

But it's the growth element of the budget that is important and you should spend at least as much time focusing on ways in which your department can achieve this.

I wouldn't be too gloomy about your prospects. After all, even the best budget has a degree of estimation and may have to be adjusted in the light of a number of factors. My guess is that if you deliver profitable growth but fail to make the full quota of savings you will keep your job, especially as your colleagues in other parts of the organisation will also be hard put to make savings of a quarter of their costs.

Miranda Kennett is an independent coach.

If you have a problem you'd like her to tackle, email: miranda@firstclasscoach.co.uk

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