Budget Challenge

Paige

For our mid-year corporate meetings, the corporate officers and directors have been given a challenge--we are to choose 3 to 5 things that we propose to do between now and the end of the year that will increase revenues or decrease the costs we control (or some combination of both increases and cost reductions) by a total of 4%.

What are some things you might do within your company? I'm thinking along the lines of--increasing worker productivity; more tax-savings to the company through increased participation in pre-tax benefits; lowering recruitment costs (through both finding cheaper sources and keeping the employees we already have). Any other thoughts? Please also think along the lines of saving costs on a "broader" view. Ideas on indirect cost savings.

Paul in Cannon Beach

Could you provide some additional information on what type of company you work for, how many employees, size of the budget, basic benefits you currently offer, etc? Also, it would be helpful to know where your HR dollars go.

The more info you can provide the better.

The area that comes to mind first is benefits. Are you currently paying for benefits that your ee's don't really utilize or appreciate. A benefit survey could help determine that.

The costs of employee turnover range from 25 to 200 percent of annual compensation. If turnover is an issue, you might want to look at your exit interviews and see if some low cost strategies exist to reduce turnover by 5-10 percent.

Cutting a position is also a fast way to save a lot of money. Are there positions which could be reduced or redesigned? Could two jobs be merged into one with some tasks outsourced?

Check your consumables and office supplies. You could have thousands of dollars walking out the door. Or you could find a low cost replacement for an item that has become prohibitive.

Good luck!

Paige

Wow--great feedback already! Thank you.

To answer some of Paul's questions:
We have about 165 employees total--130 in IL; 27 in NY; and 3 in FL. I work for one of those companies that doesn't really have a separate budget for HR specifically--all of my expenses are intertwined in other areas (making this challenge that much harder for me--how can I tell them how I can adjust my budget when I don't even have a budget!).

Benefits in IL--high-deductible PPO w/HRA (has provided quite a cost savings for us after switching from an HMO); Sec. 125 plan; 401(k); fitness center subsidy; PTO, etc.

Benefits in NY & FL--rich, low-deductible PPO plan; 401(k); no flex

Some HR dollars do go towards my own professional development--a couple of conferences during the year. I do all of the training for management and employees (to keep cost down).

One area I'll definitely be hitting on is our turnover and recruitment in NY. We have a high turnover with one (yes--just one--makes you wonder, huh?) of the admin assistant positions. They were using an agency to hire a temp--if they liked the person they would keep her, if not, they'd just ask for another one. Obviously not the ideal situation.

Open1

Where do you think the biggest area of "waste" lies?

BTW, great topic! Likely you're helping many of us at our own jobs look like heroes. xclap

E Wart

The first thing I think I would do is ask for a "detailed" copy of the prior years expenses/costs. Look at where the dollars are going and are you getting your "bang for the buck"?
Are there any benefits you could offer/change to make the pre tax (ie. 125 plan), if you don't have it?
Other things that you might want to look at is your worker's comp costs. Make sure that your company and employees jobs are "coded" correctly for rate charges, Review the prior w/c injury list to deterime ways to decrease or eliminate claims, can you get a discount in the cost of coverage with a drug free work place program? (I know that GA and TN offer this and it is a REAL money saver and good for the company as well.)
Look at your Unemployment Rates. What can be done to reduce this. Are the UI charges you have against you valid. (The Labor dept will usually provide you a list of charges, which will drop off usually in 3 years.) Can you buy down your UI rate and is it praticable to do so?
Look at your hiring/training procedures. First do you need to replace folks that leave or can job duties be reassigned? Are supv. using temporary employees? If so, are they really needed. (Often we just get used to someone being there and keep on) or are there employees (may be even in other depts) that could help out where the temps are being used. Re-negotiate your temp fees.

E Wart

Dutch2

Maybe something as simply as overtime hours worked. Are they really necessary?

WT

I have been down this road many times. Generally, the place to save the most money is by challenging assumptions on how things are done. What I generally hear is "It has always been done this way." or if an alternative is proposed, "It can't be done." Look at your schedule and method of work and ask yourself why you are doing it that way and whether another method would be better.

Can you automate, can you reduce the workforce, can you contract out work and cut costs, or could you bring contracted work back in and cut costs?

mbeam

Would also encourage you to look at the broad picture outside of the traditional HR areas and ask for input from others on your area of responsibility.

1. What are the areas for growth? Expanded growth enables you to increase what you offer therefore allowing you to look at stock plans, gain sharing, etc. It can also have a positive impact on retaining team members and recruiting new ones.
2. Look at other ways to recruit that might be cost effective - on-site job fair can give brand awareness as an employer and as a potential supplier if done correctly. Also, what about handing out cards to people that impress you who are working at other businesses that might be potential recruits. If nothing else, you would have made their day. Look internally and implement a referral program for new customers and employees.

Gadget

My mfg. plant is currently involved in a similar inistiative. Some things we've looked at:

Overtime
Benefits
Staffing levels-efficient use of current staff
Contracting out nonessentials (cleaning service)
Hiring costs
Turnover
Training

I do have a budget (for the first time in my HR career)

Let us know what you come up with.

marc

Sounds like you don't have direct responsibility for many line items - so you get to squeeze blood out of a turnip. The first thing I would do is to determine 4% of what number? Could be they are looking at a smaller or larger pool of costs and revenues than you are. So, know your immediate target.

From the HR/Benefits perspective, there are lots of indirect suggestions you can make.

1. Freeze or reduce raises. Never popular, but often necessary.
2. How about a moratorium on new hires - lay offs through attrition.
3. Are there any service being outsourced that you can bring in-house and be more cost effective. Things like administering Flexible Spending Accounts, Cobra notification and administration are a couple that come to mind.
4. Also, with your High Deductible Health Plan, is there a claims layer you can self insure? I understand that 65% of all claims are under a certain dollar amount - I think it is $500 or $600 and that another 25% or so are under $1,000. There is an opportunity to generate some savings in this area - it has some risk, but your insurance broker or carrier could walk you through the numbers for your area.
5. Do you match contributions to tax deferred savings or retirement accounts? If so, are these contributions discretionary? Perhaps a reduction here could help. It doesn't have to be a lot, but small percentiles can add up.
6. How is payroll being handled. Just like the outsourcing of certain benefit administration, this outsourcing might also save money. Depending on your economies of scale the savings could be outsourcing if it's in house prepared, or vice versa.
7. Another poster said to check WC for accuracy of classifications. It might also be a good savings to look at self-insuring a layer of WC claims. Again, risk reward ratios play hard here.
8. Consider reducing your mileage reimbursement rate for travel. Remember, any of these business expenses not reimbursed by the company can be deducted on the individual EE tax returns. You don't even have to itemize.
9. Can you make PC's and other IT equipment last another year?
10. Examine software licensing agreements and make sure you are not paying for non-existent users.
11. Put your general liability insurance policy and your D&O policy out to bid. A motivated agent might turn up some new carriers that are cheaper.
12. Bid out your third party audit, if you have one. Lots of companies will "buy" this business for the first couple of years and the product is fairly generic these days.
13. Negotiate reduced bank charges with the company bank. These charges are sky high today and lots of regional and local banks are hungry for business while providing better service.
14. Are you doubled up on dues and subscriptions. Consider one paper or magazine and circulate it amongst the readers.
15. Do you utilize postage machines and scales. Pay exact postage due instead of using stamps.
16. Can you trade in the old copier for a newer, faster model. Some mfg's will buy out your lease and give you cheaper usage and payment agreements.

Ok, these are just some of the "low hanging fruit" possibilites. Without knowing more about your business and numbers -we are all just guessing. But this can be a great learning experience for you - have fun with it and don't be afraid to go wild and think outside the box.

Good luck.

HRCalico

Marc, it's nice to see you pop in. Excellent suggestions! That finance hat really does come in handy sometimes. :>)

Paige

Wow! You guys are awesome! I appreciate all the input you've provided--this will definitely help me process through some things we need to do.

Thanks for your help.

marc

The real fun and challenge on improving budgets, at least in my opinion, is to work on the supply side of the equation. If you increase revenues, then all the other nasty little cuts don't have to happen.

You know the old saying: "A rising tide lifts all boats."

So if you can figure out a way to produce and sell more widgets, that's where all the win/win scenarios begin to play out. Cutting expenses can be necessary as a certain amount of lethargy and beaurocracy can creep into your operations and support functions, but to really win - increase the revenue.

Buy out your competition, expand your sales territories, hire more and better sales people - that sort of thing is where the real fun is.

Paul in Cannon Beach

I totally agree with Marc. I have sat through some disheartening budget meetings where we talked about cutting rates of pay, benefits, etc. Its an easy target.

The problem I see is that the organization starts a downward spiral. The high performing employees resent the pay cuts and go elsewhere. They are replaced with less talented ees. Without the star employees, production of goods and services slips. Customers start to notice and go elsewhere. Soon, you need to make more budget cuts...

Instead, as Marc has said, focus on the positive aspect of creating revenue. Its harder but ultimately more exciting.

WT

To build on what Paul has said, no company ever cut their way to success. All of us get comfortable and companies can get a little fat over time. You can save expenses by cutting, but when the easy or obvious fat is gone, cutting gets much harder. Some corporate managers, knowing how the game is played, keep some low performing employees around simply to offer them up for cuts when the front office goes into that mode. This protects the high performers of that manager and makes his life easier. It also wastes money by keeping those people employed just to anticipate cuts. The point here is that cutting is a means to an end. It finds some savings to help the budget this year. Further, after the easy and obvious cuts are done, alot of cutting is simply deferring costs to a future time. For instance, you can cut training and succession planning now and save money this year or put off that badly needed capital project, but in five to ten years each dollar saved may cost you ten. Try to resist the corporate culture of cutting to a certain target every year simply because it worked so well the first year.