Optimization of expenses on personnel: 4 mistakes permanently leading to failures

According to the experience of many companies of optimization of expenses on personnel, there can be 4 common management mistakes defined. All of them mostly lead to failures.

Mistake #1. Inappropriate prioritizing

Optimization of expenses on personnel cannot be started from a phrase: “Let’s reduce expenses on 10%! Or better on 20%!” First of all, it is necessary to estimate financial and economic situation in a company, having answered the following questions:

  • What is the structure of expenses on cost items in natural and relative aspects?
  • How has it been changing for the last 3-5 years and why?
  • What results are planned to be achieved in a year? In 3 years?
  • How is it related to the estimated yield of the business? Have all opportunities of profit attraction been used?

Many companies don’t do that due to the lack of management accounting (the lack of data) or because of the distrust in numbers available. However, setting of distinct aims of business process optimization in personnel management in order to lower expenses is possible only when you understand that there is a really critical situation in the company.

Advice: provide a regular analysis of the current state of the company, define factors following to various sequences and only after it make an appropriate decision on business process optimization in a certain sphere of business.

Mistake #2 Chiefs reduce the most significant expense items, not paying attention on how it effects on added value

Very often salary budgets are getting cut. However, reducing of the number of personnel, for example, can play a negative role for a company, as reduction of some employees can lead to failures in business processes which can cost much more to the company.

Advice: detecting weak points of business, pay attention not on the quickness of achievement of results but to the degree of influence of the process on profits and margins of the company. You need to reduce expenses in areas where there is no added value or where it is not significant. Things creating values should be supported, especially in conditions of the crisis.

Mistake #3. Managers are not ready to leave a comfort zone

Usually chief managers spend a lot of time discussing ways of business process optimization in personnel management, unless it concerns themselves or their employees. Sometimes it seems that management doesn’t take part in company functioning.

Advice: leaving of a comfort zone can help to see the situation in a new light and to create new and effective solutions. And the personnel are getting motivated only if business processes are optimized starting from the work of chief managers and their direct reports.

 Mistake #4. Improvement management is provided at off-work time

You can develop a perfect strategy of business process optimization, but it won’t work. Why? Optimization of expenses on personnel differs from a common management significantly.

Advice: create a department where representatives of all directions of business will be represented. Arrange meetings where you will be able to discuss current problems concerning improvements and prepare reports for all employees on the progress of expense reducing.

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