Are You Losing Money (Without Knowing It)?
Most businesses know
if they’re making or losing money, even if not down to the last
cent/penny. After all, they know how
much they’ve sold and what their costs are, right?
Not always… I ask my
clients to distinguish between “active” and “passive” waste and get some
interesting answers. For clarity,
“active waste” is when you can see money going out, but no income coming in as a
result. A simple illustration of
“active” waste would be buying a piece of equipment that didn’t work as
advertised.
“Passive” waste is where a salesperson spends time on a
prospect who never buys, but keeps encouraging them to come in. The salesperson is spending time which could
be spent on more promising prospects or existing paying customers.
Another example would be for an outsourced service provider
whose contract stipulates that they provide management information to the client. Whilst that client is using the provider,
that’s OK, but when they don't and the contractor still has to provide that information, that’s more passive waste (for the contractor) because the management time could be spent on something more
productive/remunerative.
The above was one of the reasons underlying why certain
banks back in the 80s cut down their relationships with big companies. They felt that what they earned from that relationship was insufficient for the risk taken and work done.
Staff time is worth money.
A business will want to see that time put to the most profitable (or
least loss-making) use possible. As
humans, we make decisions every day on what we will spend time on, based on:
- The perceived effort required in spending that time on that particular task/person;
- The degree of effort needed;
- The risk involved;
- The rewards that it will bring.
All have to be seen as acceptable for that time to be
allocated.
For example, if something “high effort” brings minimal return,
we might pass it over in favour of something else that requires “medium effort”
but results in a high return or something “low effort” that brings in medium return. Of course, some tasks (e.g. Health &
Safety, regulatory compliance, tax returns, etc) may be “high effort” but will
result in our business being shut down if we don't comply. Sorry, they must be done…
One problem that I notice is that senior managers or
business owners often don’t understand how much time their staff require to
complete a task because they (the
manager) aren’t involved. As St.
Bernard said, “what the eye doesn’t see, the heart doesn’t grieve over.” The senior manager or business owner who
insists that time be spent on that client may be directly responsible for that
loss without knowing it…
The best thing to do is know:
- How much our staff’s time is worth;
- What they do;
- How much effort is involved;
- What the “rewards” are for doing it.
How do we do this? Walk around, talk to people, see what they're doing, ask questions (particularly if they can suggest a better way of doing it). After all, they're the experts. Leadership means legwork.
In this way, we may be able to minimise or even avoid high
effort/low-return tasks and contracts.
I have spent more than half my life delivering change in different world markets from the most developed to “emerging” economies. With more than 20 years in international financial services around the world running different operations and lending businesses, I started my own Consultancy to offer solutions for improving performance, productivity and risk management. I work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services. For strategic questions that you should be asking yourself, follow me at @wkm610.
Labels: Financial, Leadership, Productivity, Strategy, Teamwork
posted by William Martin @ 08:18
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