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The Nolan Company is pleased to bring our readers
a special series of new articles covering the surprising
opportunities and the risks of these turbulent times. In each of
the coming weeks, we will share our insights and experiences in
managing toward the upside during a time of unique market
dynamics.
Cutting Costs Across the Board: A
Necessary Crisis Strategy?
Kim Wilkes
Executive Vice President
In times of
financial crisis many companies are forced to initiate cost-cutting
measures. For most health plans this means headcount reductions. If
you Google "cost-cutting strategies" you will find approximately 1.8
million hits. Yet, many executives will take the "easy" way out and
demand 10, 15, or 20 percent cuts across the board. This is not a
strategy. The expectation is that the "fat" will be trimmed while
the result may be just the opposite.
Consider this: An across the board headcount reduction will
impact the cost-conscious manager the most and impact the high-cost
manager the least - just the opposite desired outcome. Cutting costs
in an area where the manager has always been conscious of the number
of employees required to do the assigned work will, in effect, be
cutting into the muscle, not the fat. Conversely, a manager who has
operated with excess staff will be able to cut and feel less (or no)
pain. Unfortunately, this manager will probably also be praised for
his or her ability to weather the storm.
One of the quickest and most equitable methods of determining
headcount requirements is development of staff models. These models
determine the required time to complete the current workloads and
then determine the required number of employees necessary. The
models also take into account vacations, sick time, overall staff
experience, volume fluctuations, and supervisory personnel. Staff
models also yield the invaluable benefit of being able to forecast
future staffing needs based on workload volume increases or
decreases.
The result of implementing staff models will be the true
identification of "fat" and the ability to trim costs with the least
negative impact on productivity and service. Companies that have
implemented staff models rarely, if ever, resort to across the board
cuts because they have the ability to focus on areas where cost
reduction is deemed appropriate. In fact, many companies that have
long utilized staff models do not look at headcount reduction as a
first solution when crisis times arise.
The Robert E. Nolan Company has a 35-year history of helping
companies develop simple, yet effective, staff models. If your
company is looking for ways to reduce expenses in an equitable way
we can help you pinpoint where they exist. Remember, across the
board headcount reduction is not a strategy; it is, most times, a
knee jerk reaction. I welcome the opportunity to discuss these key
issues with you as you confront them. Please e-mail me at kim_wilkes@renolan.com
or give me a call at 800-248-3742.
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