Cost Control

6. Pitfalls

Reducing costs can be damaging. Before making changes, check that your standards will not be compromised and that your ability to meet objectives will not be harmed.

6.1 Reducing costs which directly impact on employees is fraught with difficulty.

• Employees are not machines.The work performance suggested by time and motion studies is unlikely to reflect people's actual behaviour.
• Reducing costs such as training and meeting times is often counterproductive in the longer term.
• Introducing improved procedures can be difficult and expensive.Employees may be resistant to change, and may need extra training.
• Poor conditions, pay and benefits will not attract and retain good employees.
• Changing an existing employee's terms and conditions, to the employee's detriment, can be a breach of contract.
• Making employees redundant brings short-term costs and the risk of possible employment tribunal proceedings. It may also damage long-term morale.

6.2 Almost every cost saving has a potential downside. For example:

• Over-dependence on one supplier puts you at risk if the supplier fails.
• Production and marketing plans driven by cost-cutting considerations are unlikely to be responsive to customer requirements.
• Tighter control of financing may leave you with no safety margin when cashflow is unexpectedly poor.
• Cutting short-term 'investment' costs (eg training, advertising, equipment or new product development) can lead to long-term weakness.
• Attempting to control unalterable costs is itself a wasteful process.