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WSJThe Wall Street Journal headline today (August 12, 2009), page A2, was “Productivity Leaps as Companies Reduce Costs”. Does that include you? 

The US productivity had the highest gain during the second quarter in over five years. Many have been effected by other company’s reducing costs. It may even effect your revenue. Yet, as you work to increase your revenue are you balancing that out by paying an equal amount of attention to the other half of the profit equation? Expenses. Remember, profit equals revenue minus expenses. As Robert Kiyosaki, the author of Rich Dad, Poor Dad has written, it’s not important how much you make but how much you keep. If you reduce your expenses, you can keep more of what you already have. Increasing revenue is not the only answer to increasing your profit.

 

 

It is true any dollar you save will trickle down and effect someone else’s revenue. That’s unfortunate yet necessary for you in these times. For many, reducing costs means reducing labor, aka layoffs. Although cutting labor is the easiest (and ugliest) way to reduce costs there are other methods. Some claim the recession is over, nevertheless, it will take months or years to recover. And it won’t look or feel the same as it did a year ago. 

So in the meantime, here are some tips:

  1. Track expenses – If you're charting a new course, you need to know where you have been. Track all your expenses in detail and frequently. Monthly may not be often enough. Track your expenses weekly, if necessary.

  2. Review your usage – Are you getting your money’s worth. For example, do you need all those minutes, all those ‘txt’ messages? Sure you have unlimited minutes and messages, but what is your cost per unit compared to the next lower priced plan? Are you really saving by being “unlimited”? Okay, so you have roll over minutes. Good for you. Did you pay too much and will you ever use all those minutes? Otherwise, look elsewhere for savings. This can refer to personal as well as business expenses, i.e. lattes, bottled water, etc. The question is, “Do these expenses generate incremental revenue?” 

  3. Prioritize your cuts – Q: How do you eat an elephant? A: One small bite at a time. Which cut(s) will result in the best bottom line for you? Warning: Some revenue may be at risk. However, remember what your Rich Dad recommends, “Keep more!”

  4. Make the cuts – This is not for the faint of heart. Work your plan. 

  5. Check your work – That’s what my second grade teacher, Sr. Mary Hyacinth said.  Monitor the execution of your plan. Are you accomplishing your daily/weekly/monthly cost cutting goals?

  6. Make adjustments - Maybe that daily “vente skinny extra hot espresso truffle mocha with room and no whip” will generate a client. Planning (and re-planning) are more important than “the plan”. Don’t lock yourself in to a plan if it is not working. Make a new plan. 

That was a financial romp through the PDCA methodology for process improvement. PDCA is an acronym for my company name and an acronym for "Plan-Do-Check-Act". The PDCA methodology has long been deeply ingrained in our business style. PDCA ("Plan-Do-Check-Act") is a four step repetitive problem-solving process. 

  • Plan: Find the real problem, the root cause, not just the symptomatic issues. Define what one thing impacts others. Gather the internal subject matter experts to formulate a strategy and tactics to combat the real issue. Define and agree upon measurable metrics as a team. Example: Steps 1-3 above.

  • Do: Implement the plan with focus, measurement and accountability. Step 4 above

  • Check: Verify the plan was implemented as charged. Do the metrics work? Can you measure the improvement? Has the real problem been diminished? Step 5 above. Finally,

  • Act: Analyze the gap between the Plan versus Do. Adjust the plan and the metrics so they do the job. Step 6 above. Then, start the (PDCA) process over again looking for more ways to improve. 

It is a classic Total Quality Management technique introduced as the Shewhart cycle. Although popularized by W. Edwards Deming in the 1950s, its origin actually reaches back to the 17th Century. Today Six Sigma refers to it as DMAIC. This process has been used countless times and has been a successful formula for thousands of companies around the world.

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