Cutting Budgets without Butchering Your Business
 By Chuck Moyer

You wouldn’t trim an expensive and valuable piece of steak with a butcher knife, don’t make the same mistake with your business or department budget when it comes to needed cuts.

Budget cuts invariably begin with targets. It is a specific monetary amount or percentage reduction out of your planned expenditures for the year. Unfortunately, randomness, malice or self-preservation can determine where the cuts fall.

It isn’t so much the ideal or need for budget cuts that are the problem, it is more in how they are determined and executed. Given the target, most efforts at budget cutting go about looking for the people or group to cut that would be the easiest to execute in the short term. In the pressure and negativity around budget cuts managers of budgets sometimes forget to consider long-term effects, effects on the remaining members of the organization or department, by-products or results indirectly caused by the cuts, and even preservation of a base to rebuild on, should the business turn around from contraction to expansion.

The best way to assess and determine a budget cut is first to understand the drivers of cost /expenditure in your business or organization. Budgets are a result of the effort you propose to do from input of internal or external suppliers to internal or external customers. When budgets are cut there must be one or more of the following to occur: (1) Inputs will be reduced, there is less need for your group’s services, the volume of work has reduced and so should your budget – for your variable expenses (2) efficiencies will be implemented / waste will be eliminated– this is truly the intent of budget cuts, but it the most difficult to identify and implement (3) your group will do less – i.e. less detail, less checks, less offerings, etc. Unfortunately this sometimes means less quality, and lastly (4) Less outputs or slower response time.

When you understand the results and effects of planned budget cuts, then you are ready to focus on the specifics and target the most appropriate and least business significant area for savings opportunity. Attack the achievement of the target amount in waves or layers of cost/expenditures, reviewing how close to achievement you are with each wave before advancing to the next wave. 

1. Halt initiation of new spending. Any new expense, or commitment not yet made in writing, must be reviewed in the context of the what the organization looks like or is focused on after budget cuts. Does it still make sense? Will it help achieve the savings targets (net of the expense)? Will it lead to an ongoing maintenance or support cost? It may seem obvious, but you don’t want to spend money on a CNC Machine for an outsourced group.

2. Stop any non-committed one-time charges/expenses. This is one step beyond the previous one, where you are looking to stop any expenses or more specifically, put on hold or suspended, until further review. This targets a savings in cash in the short term.

3. Stop any re-accruing charges, not contract obligated. Take a look at those charges that occur every month. Products or services that the organization or department is no longer using, or are not currently needed are opportunities for beneficial cuts. And since they trickle out in a constant flow they tend to add up quickly.

4. Cut all non-essential consultants. This actually should be a regular review activity, but here you are looking at taking any task, currently being done by consultants, and asking yourself if it can be taken up by internal personnel. Just be sure the internal resource has the bandwidth and capability to take on the tasks in question.

5. Renegotiate existing contracts: Re-pricing/ Deferral. This is where we start to get in desperate levels. We need to ask our partners in business to assist in the attainment of the budget numbers. Be reasonable not demanding here, they have a contract, but they do want to see your company remain successful. If approached from a collaborative and creative perspective, you will likely find a win-win scenario.

6. Cut all Consultants: now we need to baseline the foundation of your business, pull in activities to employees, but don’t overburden the good people you have left, be sure that what you give them is necessary and valuable to the organization.

7. Layoff under performing or non-essential workers. I put this after cut consultants only because equity for a company is how it serves society, and one of the most tangible ways it does that is the sustaining of workers and the means for them and the company to contribute to society. But here is where you need to get rid of your bottom percentile of performers. This is the manifestation of that budget cut goal of lean and efficient operations.

8. Sell off expendable assets; tangible assets that the organization or department is no longer using, or are not currently needed are opportunities to gain cash.

9. Cut back to bare-bone services internally. Especially at this point, but also on all the others, be sure you are not cutting capability to unrecoverable or worse; unsustainable levels. Look at the after-effects of these cuts and ask yourself if business were to pick up, do you have the foundation to build that growth on?

Be careful with targeting outsourcing as means of saving. With out-sourcing there is transition and implementation costs that are always an up front cost increase for the organization. And these efforts work best when you have discrete, quantifiable and repeatable process/procedure transactions that can be contained in a single out and in, and that this service has become a commodity within the organization not a core competency.

Budget cuts are not intended to shut down the business, in fact sometimes they are needed to save the business or re-focus in a new direction. How budget cuts are applied and executed, determine their success to the business. When taken as a chance to review and challenge the expenses of the department, you as a manger have the opportunity to validate and demonstrate the contribution the items in your budget make to the business as a whole.

 
Composite Application Selection
By Chuck Moyer
 
In the selection of third party applications, representing an architectural perspective and consideration is congruous. While any software application choice is done primarily by business requirement and expected benefit, it must balance against a true representation of organizational cost, both in initial procurement and implementation as well as ongoing support and maintenance costs.

Cost support, whether opportunity cost or bottom line expenses; do not end with implementation of a new program or application. Any program does not remain static or self sufficient incrementally adds activities to the general support budget floor for areas like Information Technology and Training.

Intangibles also need highlighting to ensure realistic expectations and validation of assumptions, as complexity, integration, data concurrency, aggregate management, cooperative collaboration and others can impact on future opportunities available or determine efficiency ceilings. Though these elements do not translate well into financial figures they merit in any evaluation just as qualitative risks are weighed in a risk analysis.

Once a technical application capability is available within the current IT configurations, movement away from the already implemented solution would need a sufficient justification to over come the inertia and assimilation already provided by the support, familiarity, and operations elements gained by the embedded application or functionality, likely achieved over a period of time. This understanding and optimization to support and maintain the application/functionality will always need rebuilding with the implementation of a new application or software.

Be cautious to not limit information on consideration choices only to vendor demos or materials which usually focus on features and capabilities which are surface level or marketing centric info. All software providers tend to diminish the efforts involved in transitioning the organization (technically and operationally) from current state to the vision sold in vendor presentations and even less on the assimilation into the rest of the systems and organization elements on an ongoing basis. Selection is ultimately a cost-benefit analysis but cost calculation is only accurate if consideration goes beyond departmental use and includes costs for support, maintenance, intangible impacts, and future stream costs for the organization.

Functional requirements for the organization should map to feature listings of each offering to identify and highlight differentiators between the applications and provide a score card against the requirement objectives of the department or group requesting the solution. Features and benefits considerations based on the collective capability offered by the application will highlight total benefit as some capability of an individual program or application may provide a benefit that more than compensates for another feature or capability where the individual application is slightly deficient.

Most enterprise level applications are not self-sufficient and isolated, and will likely require data from other transactional applications and even have requirements to pass updated information back to source applications to retain data integrity and concurrency. The leveraged advantage of ‘packaged’ applications is that the integration and data sharing efficiencies are designed into the application. Any separate application requires data transfers for foundation information like customer data, invoices and the like, that are maintained or created in other applications.

Even if generalized interfaces are available, mapping and system capacity will need to be allocated on an ongoing basis to maintain this data transfer and monitor it for error handling. Most likely efforts for developing and maintaining custom interface programs are another incremental and ongoing cost support new composite application. Additionally when data transfers are required there immediately becomes the issue of data latency, where events and updates in one system is not able to reflect in other systems until some time delay that is required to process the data transfers. These data delays can sometimes affect the efficiency of individuals or groups as they are not operating with the ‘latest’ information.

Application knowledge within functional IT and support areas to accommodate solution design, trouble-shooting, reliability and performance improvement, backup and recovery, help desk support and training will need to be developed in the organization and as you increase the number of different applications each functional area needs to support or in-depth knowledge of each application will be reduced as individual resources will spread their understanding over the collective applications they need to support.

With separate applications, account and access management for users becomes more complex. Automated tools for segregation of duties conflicts will be more difficult to configure and manage, and costs for yearly compliance reviews for S/OX compliance may increase as access considerations for individuals must be analyzed across applications, especially when financial applications are under consideration.

With a separate application upgrade schedules between systems upgrades now become separate thread events with increased frequency and complexity require planning and oversight. This represents an incremental yearly effort activity for not only IT support personal but business users as well.

As you add separate application systems to the enterprise footprint complexity and cost impacts will be felt in the area of disaster recovery, as more separate applications need to be staged and backup, as well as coordination between data sequence and timely in the separate systems should a multiple system recovery be needed.

Conclusions
The efforts, resources and cost to implement and develop reports for either solution can be similar. But the complexity introduction and year over year costs for servers, maintenance fees, upgrade activities, skill development, integration support, and disaster recovery is increase in cost from an organizational and IT support standpoint as is, may be contrary to budgetary pressure to reduce these expenses year over year. As IT support for additional applications increases the maintenance cost floor, be sure that composite applications consider that cost increase as well as factors of complexity for future endeavors and those composite applications that bring a large return or better yet a continuing return that more than covers these implicit and explicit IT costs are just good business.

Enterprise Application Evolution Path