Cost Reduction: Improve Your Department's Bottom Line | Chris Croft | Skillshare

Cost Reduction: Improve Your Department's Bottom Line

Chris Croft, International Coach

Cost Reduction: Improve Your Department's Bottom Line

Chris Croft, International Coach

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36 Lessons (2h 20m)
    • 1. What to Expect

      1:03
    • 2. Introduction

      0:39
    • 3. Identify Main Areas

      1:27
    • 4. Pareto - Do Your Costs Cluster Together?

      3:10
    • 5. Comparing Cost vs Income

      3:24
    • 6. Are Your Customers a Cost?

      7:05
    • 7. Wrap Up

      0:16
    • 8. Bad Time Management

      4:26
    • 9. The Cost of Low Morale

      5:55
    • 10. Bureaucracy and How to Reduce It

      8:27
    • 11. Only Have Brilliant Meetings

      5:10
    • 12. Effective Uses of Management Time

      5:03
    • 13. Utilisation of People

      2:50
    • 14. The True Cost of Staff Turnover

      5:47
    • 15. How to Choose Who to Fire

      4:00
    • 16. Better Alternatives to Firing

      4:04
    • 17. Reorganisations - Good or Bad?

      2:26
    • 18. Wrap Up

      0:53
    • 19. Introduction

      0:18
    • 20. Stock - The Hidden Curse

      3:31
    • 21. Is a Central Purchasing Department a Good Idea?

      6:28
    • 22. Are Sub-Contractors more Expensive than you Realise?

      6:12
    • 23. What Is Your Optimum Quality?

      10:13
    • 24. Effectively Managing Queues

      4:37
    • 25. Bottlenecks

      4:50
    • 26. Poor Utilisation of Assets

      2:51
    • 27. The Real Cost of Bad IT

      7:34
    • 28. The Small Stuff

      2:31
    • 29. Get Value From Marketing

      4:39
    • 30. A Lack of Investment Can Be Costly

      3:20
    • 31. Your Company Culture

      3:17
    • 32. Wrap Up

      0:51
    • 33. Introduction

      0:15
    • 34. Top 10 Things to Measure

      7:22
    • 35. Top 10 Actions to Take

      3:55
    • 36. Conclusion

      0:41
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About This Class

Cost Reduction: Improve Your Department's Bottom Line

Cost Reduction - identify costs in your business that can be cut without negatively affecting your quality or customers. Maximise profits and motivate your workforce.

Cutting costs in your organisation can make a huge difference to the profit margins? Imagine if you wanted to double your profit... To do that could you sell twice as much, or manufacture twice as much? Could your company grow to twice the size it is now within the same market? Well guess what - you don't need to! By cutting your costs by just a small amount you could potentially double your profits without needing a single new customer and without making a single extra product. You won't need to hire more people, enter new markets, or get a new premises - just focus on being more effective with what you already have. Cost Reduction training can make all of these business goals come true.

In this course you'll learn practical techniques to identify wasted budget in your company, detailed tips for analysing the effectiveness of your biggest costs, understand why you should increase your prices or reduce your quality, learn which of your customers are actually loss-making, and dealing with common problems of management and motivation.

After this course your company will be lean, have highly profitable customers, and every part of the supply chain will contribute more effectively. We look at lots of real-life cost reduction examples (some of which will definitely get you laughing) and give you practical tools you can use right away to get better results in your organisation. Whether you're a small family business or a huge multinational this course will build essential skills for your long term growth and short term effectiveness.

In my opinion Cost Reduction is one of the most powerful and underestimated leadership and project management areas. Most companies focus entirely on selling and forget that there are millions of dollars left on the factors floor through inefficiencies and misunderstandings. So, I have created a step by step course you can use to analyse your business and cut out all the waste. Rest assured - you need not make your employees or customers unhappy using these techniques… in fact most likely both will end up better off. Imagine if you only needed to work with your favourite customers, all your employees were highly motivated, and you could produce twice as much product at the same quality level? This course achieves that with simple, tried and tested ideas that have been working for decades.

Chris Croft is an international speaker, and widely published author, who's been teaching Cost Reduction to companies for over 20 years. He's taught all over the world, as well as online, and has an entertaining and practical teaching style. This course is guaranteed to keep you engaged and amused, and teach you life changing skills for home and work.

The course overview includes:

  • How to identify your most profitable customers, and which are loss-making

  • Should you reduce or increase your quality?

  • Motivate your employees to go over and above

  • Highlight missed opportunities to save thousands

  • Understand why a few costs make up most of your expenditure

  • Identify why a simple printer could be the most expensive item in your company

  • And as always it's 100% practical, and with no technical jargon. 

  • And lots lots more!

By becoming great at Cost Reduction, not only will you benefit from happier and easier customers, you'll also have made your company huge savings and healthier margins!

Meet Your Teacher

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Chris Croft

International Coach

Teacher

Chris Croft is one of the UK's leading trainers and provides a wide variety of courses designed to involve, inspire and motivate people of all levels. To date Chris has trained some 87,000 people and enjoys a 94% rate of repeat business. Chris is also a successful author, with his first book 'Time Management' published in 1996 to wide acclaim and has since been followed by fourteen others. His tip of the month email goes out regularly to over 10,000 people. 

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Transcripts

1. What to Expect: welcome to my cost reduction course. I've spent years learning about this and thinking about this subject, and there's a lot to cover. I've decided to divide it into labor related costs on other costs you can save because obviously there are things like materials and power and all that sort of stuff. I think the biggest cost in most organisations is labor Andi. Clearly, if you can save people's time, you don't save money unless you can get rid of people or do more work with same people or not replace people who leave so you can make saving people's time into a really cost saving . So I've decided to look at people and then all the other costs, and that's I've structured the course. It's full of meaty stuff. I'm hoping you just get one or two things from the whole course that you can use because even if you do that, you'll save a whole load of your costs. But you might decide to do absolutely everything on this course that will really revolutionise your business if you do that, so let's get right in and get started 2. Introduction: welcome to the first section of this course, which is about identifying which areas to target first. Clearly, you want to target the biggest or the easiest areas where you can save money, which might be people it might not, who knows, So we need to look at that. And I think quite often organizations become obsessed with, you know, not having biscuits at meetings or not having posted notes or something like that, and that may well not be the best area to focus on. So we're going to explore that first, and then we'll get down to the detail of how do you actually save money in the areas that you're going to target? 3. Identify Main Areas: so you've got to reduce costs. What do you do on? The first thing is you got to identify the main areas where you can get potential savings. People are going to be one area for sure. People are often the biggest cost in organizations, and they're always a significant cost. But it might also be materials on that might be consumables. It might be bought in subassemblies. If you're buying in subassemblies, they can be really expensive. It might be subcontractors time as well. So subcontractors counters as a cost on. Of course, power is another variable cost that people have. Can you save power? Then there are fixed costs like, for example, buildings and the word fixed cost implies it can't do anything about it. But clearly, if you could save space, you might have to sell off a building or not have to rent it, so saving on buildings would be a cost saving. Now, how would you work out which of these your biggest costs? And I would say he gets from looking at the accounts. Look at the real accounts. What actually were your costs for last year? Once you've got a breakdown of what the costs are for your business from the accounts and getting accounted to help you. If you need help with that, you can then put them into priority order. Andi, the thing to do for this is to do a burrito analysis on. We're going to look a burrito in the next section. Let's do it now. 4. Pareto - Do Your Costs Cluster Together?: so Pareto was in Italian. The Pareto principle is often called the 80 20 Rule or the 80 20 principle. I think the original one, he said, was 80% of the money was owned by 20% of the people. Nowadays, it's more like 95 5 I think 95% of the money is owned by only 5% of the people in the world . But in his day it was 80 20 on. He was the first person really to come up with this idea that if you want to save money or make more profit or change anything, you want to focus on the key areas. So, for example, 80% of your profit comes from 20% of your products, or 20% of your customers, so you need to focus on those. So the idea is to identify which of the key areas on, then to delve efficiently into each one. So 20% of your cost categories will probably be adding 80% of your costs. If you can work out what those 20% are, they are the ones to target and then you focus on those. So suppose for example that mistakes in the factory are one of your top cost areas. You would think, right, I'm going to focus on those, and then within that you would do it. Another Pareto analysis to say, What are the different mistakes and how much is each one costing on again, you will find that 80% of your mistakes are being caused by 20% of the problems. So those 20% of the ones to home in on or if materials were one of your big costs, you'll probably find when you drill into it and you do your sub burrito, as it were, that 80% of the spend on materials is probably going on 20% of the items, So those are the ones that we would negotiate with or try to reduce or find cheaper alternatives or whatever we decide to do. Stock is another classic area where burrito applies, So 80% of your stock costs your money that's tied up in stock probably comes from 20% of the items. So what are those high value items on? Can you reduce the amount of stock that your keeping of those on, by the way, I'm gonna come to how to duel this later. So how would you reduce the amount of stock? I'm going to tell you about that in a later video. And then there's time. 80% of your wasted time comes from your top 20% of your time wasters, So if you've got 10 time wasters, probably two of them will account for 80% of your wasted time on its same with anything, 80% of your travel brings you only 20% of your sales. You know, whatever you analyze, you'll always find that the 80 20 rule is there, and it's just a statistical thing. If you have a load of random numbers, you'll find that 20% of them will add up to 80% of the total is just how life is. But it's such a useful idea for choosing the main subject areas and then within within each subject area, choosing which bits to target 5. Comparing Cost vs Income: Now, when you're thinking about which costs to cut, there is one other ingredient that must be remembered, which is what about the income that it generates, So compare each cost area with the income it generates. So, for example, you might have quite a lot of sales people. And you might be thinking we could cut some of those sales people. They're expensive, but actually, maybe they're worth it. And maybe that top paid sales person who you resent because he or she earns more than you is well worth it. They're probably bringing in 10 times their salary, so you've always got a look at the value as well. Advertising you can cut training is always very tempting to cut, but remember, it might be generating more than it's costing. One would hope it does. It might not know. So it's really important to do the laughs and work out whether it's worth it or not. I'm gonna come back to that later of How did you decide where the sweet spot is on things like that? How much should you spend on I t I'm gonna show you a graph that would tell you the answer for that later on. I remember when I worked at the university Business School is a lecturer. They decided to cut our whole department because we used to cost quite a lot. But what they didn't realize and it's pretty obvious, was that we were actually selling off our days out to customers out to local businesses. And we were bringing in a whole load of money on when they cut us. They saved that the cost of our salary and the office that we had on the I t support, but they lost all the income we were bringing in on. Now the university has got a deficit, and I wonder why. So don't just focus on the cost. Always think Is there an income as well on? It might be that you use quite expensive materials. I suppose you do training courses and you use really nice paper and its color photocopied and things. And you might think, Well, I could cut that, but maybe you couldn't charge so much for the training. And in fact, I've got a real example of this. I did a training course for a on alcohol clinic where celebrities go to dry out but not name it on. We had the chef on the course, and he said that they spend £20 a day on food for the celebrities, just for the ingredients. And then he cooks it. And he said that they were trying to save money, and somebody had the idea of cutting the cost of the food from £20 a day to 15 now £5 a day, times for 165 days a year. Times however many customers they've got at the clinic, it probably adds up to quite a lot of money. But on the other hand, don't cut the quality of the food. That would be madness, because the food's 20 quid, they're probably paying 200 or £500 a day. I don't know how much they pay for these clinics. So just to save a fiver on the food is really a false economy, because that's the thing that the celebrities probably notice most so that tiny saving could probably lose a load of customers. The foods probably the most important thing, especially when you got to give up booze and you got something decent to eat, so that would be a really force economy, and I really hope they didn't go ahead with doing that because it would have bean suicide. So always look not just at the cost you can save, but that the money that's being generated by having that better quality don't just cut. Don't just cut costs without thinking about the effect it will have on your income. 6. Are Your Customers a Cost?: Now, while we're looking at what to cut, I want to say that customers can be Acosta's. Well, I know this sounds counterintuitive, but some of your customers are probably lost making. I've noticed. Actually, when I ask people in training courses, do you think you've got any loss making customers? They always go, Oh, yeah, and they always know who it is as well. Uh, so you could do a Pareto again and just look at your customers. And in fact, if you did that, imagine if you had 80 and 20. So imagine if 80% of your customers we're bringing in 20% of the profit on 20% of the customs were bringing 80% of the prophet. Imagine if you obviously you gotta look after those top 20% right? But if you look at the other 80% who only bring in 20 do you think they all are equal? And of course, they're not, are they? What you'll find within that 80 is you'll have about 30 who are probably bringing in Let's call it plus 30 and then you'll have another 30 who are probably bringing in zero. They're just breaking even on, you'll have a bottom 20% who are probably losing about 10 so you end up with plus 30 0 and minus 10. So that's your 20% that their cup they're bringing in. So you've basically got a bottom 10 or 20% of your customers who are actually loss making. And there were two main reasons for the being loss. Making on the first reason is just You sold it to cheaply through lack of confidence or worrying about your competitors. You just didn't get a good enough price. But the other reason is variation in customers, because some customers are easy to look after on some are a pain, so you send it them thinking it's gonna be great, and they turn out to be really high maintenance. So they soak up a load of management time, which you didn't cost in. In fact, you probably never cost you probably not really aware of it. But But those lost making customers are soaking up the management time on for whatever reason, it could be that they negotiated really well and got you down in price, but usually they turn out to be higher maintenance than you thought so. The 80 20 says that 80% of your customers aren't really worth much, probably 1/3 of them of giving a little bit of profit. 1/3 approximately a break even on 1/3 are actually lost making. So get rid of those loss making customers on. How would you do that? Well, I'll come to that in a moment. But actually, just before we think about that, how you gonna find who those bottom ones are now? Usually we just know which ones are a pain. But what you could do is you could try apportioning all of your costs to customers. Now, most businesses have never done this. So your portion, the direct costs, obviously to the stuff that you've sent to those customers. But why not a portion or all your other costs as well, like management time, cost of training, cost of marketing spread all of those costs across the customers on. So you've got the income from the customer minus the costs that you've apportioned on. What you'll find then is that some of them are loss making. Those costs have got to go somewhere and you find yourself thinking, Oh, no, But in that case that customers lost making actress. Yes, they probably are. And if you've got ah, high maintenance customer, just give them or of the management cost, so that will tell you who those lost makers are. And then it's time to get rid of the loss makers. So what's the best way to do that now? Obviously, you could just tell him to get stuffed where you could just tell them. Unfortunately, we can't help you, but I wouldn't do that. I think the thing to do is put up your prices because there were two things that will happen if you put your prices up by a bit just on the loss making customers. Either they'll pain mawr, which is great, or they won't and they'll leave, which is also great. Basically, leave your now not losing money on that customer. So you've actually made more money by that customer leaving, so you win either way. So here's a thought. How much more would you sell if you cut your prices on? More importantly, how much less would you sell if you increase your prices? That's a really important to think about if you increase your price by a bit. How much would the effect be on the amount you sell? So I'll give you an example. It's one of my clients wanted to get rid of all of its small accounts. This is a great big cleaning company. They wanted to get rid of all their small accounts, so 80% of their accounts were bringing in 20% of the money, and they decided to really, really focus on the other 20% and look after them and take them to Wimbledon or whatever it took and get me to the others. So to get rid of all the smaller cats, they decided to put their prices up by 12% on it was cleaning. It's pretty cost competitive. They were only making 3% profit on these accounts on, they put the price up by 12. So they were now going to be making 15% profit on anybody who stayed, which is five times the profit, so they could afford to lose four out of five of their customers and still make the same profit. But what happened? Amazingly, what happened? Waas. They put the price up by 12%. The only lost 2% of their customers. Only two out of 100 said, I'm not paying that. So they made five times the profit on 98% of their business, which is incredible. They could have lost 80% and still be better off. So clearly they should have done that years before. And they were obviously worrying they would lose all of their business by doing that. They thought it was really cost competitive, because once you've got regular customers who like you and they understand the quality of what you deliver, they probably will pay a bit more. And if cleaning only cross 100 quid a week, if it goes up to 100 and 10 the customers not gonna care the 2nd 10 quid it's not worth shopping around. So absolutely, it was the right thing to do to put their prices up. And maybe you should put your prices up. Maybe you'd make more profit. Maybe you'd get rid of a few customers who were lost making anyway. And by the way, don't you often find that the most cost sensitive customers are also the ones who the biggest pain, the ones who always it's too expensive. Can you cut the cost there usually the really high maintenance people who expect mawr than everyone else for a lower price. So wouldn't it be great to get rid of those customers now? The way to test this scientifically is to experiment with your pricing so that you can measure the effects that you can understand what's known as the elasticity of your market. So perhaps just on new work, or perhaps just on one inquiry and four selected at random or perhaps in one geographical region, Just try putting your prices up a little bit on DSI. What happens and you'll probably find they're not bothered and they all pay and it's absolutely fine. But that's the way to understand elasticity. Okay, so that's what I want to say about customers can also be a cost. They can actually be loss making on the ones that lost, making on the ones that are breaking even. Why not put the price up and see what happens 7. Wrap Up: So we've looked at identifying where your main cost areas are using Pareto and bearing in mind that it could be customers we now need to move on to. How can we actually reduce costs in those areas? 8. Bad Time Management: So the first area where people's time, which is the same as money, gets wasted. It is a bad time management. So, for example, allocating your time to things that are unimportant. People often haven't really thought about what's important and what is unimportant. So, for example, if you are in sales, you might spend your time fiddling with the database. And making a nice, neat spreadsheet rather than actually phoning up new prospects, is clearly it's his left scary to do that, but you be allocating your time to unimportant things. The most important thing is contact time, with customers either talking to new ones or looking after existence existing ones. So that's an example of importance. And sometimes people are dragged, of course, because they do urgent things rather an important things on. Yes, we have to do urgent things, but we must always make sure we spend some time every day on important things. Another aspect of time management might be interruptions, allowing yourself to be interrupted or distracted by whatever is going on in the open plan office, so interruptions can lead to a lot of time wasting. And if you have, let's say, 10 interruptions per hour and if he tried and he takes two minutes. But if it takes you a couple of minutes to get back into what you were doing, that's four minutes per interruption. Times 10. That's 40 minutes an hour gone because of interruptions. And I think open plan offices have made this worse another time. Management related waste of time and therefore money is repeating tasks when you don't have very good systems. So, for example, you might be typing standard emails every time rather having a standard template. You can just pull in or perhaps reordering stuff, you might think. Where's the guy's phone number? What was the website again? So having a really efficient reordering system would be great on. So, for example, in the color toner cartridges I've got in my office, I've got a spare, one of each one on. I've got written actually stuck on the shelf. I've got the the www dot wherever the cartridges come from cheapo inks dot com or something , so I don't have to think when they order a new one. I just There's the Web address ready, so just have great simple systems for reordering working out your tax return, all that sort of stuff, you should have standard systems. So any repeating task, you should have a good system. Also repeating problems that have not Bean nailed on. I just find it incredible that people have to saying problems to come up over and over again. You know, the car doesn't startle their computer crashes or they can't find things or stuff runs out . So if you have a regular problem that the print two runs out of ink and there just never seems to be a new one, then you need a better system. You know you need to have spare cartridges that are locked in a cupboard, and only you have the key on. When people come to get the key, you make sure they re order or something. But nail that problem so it doesn't keep repeating as such a big time waster. Repeating problems If I almost every problem you have has happened before, so you've got a nail. It haven't you for another area of wasted time is what I call Duff information. So if you've got rumors or inaccuracies on the system, you think things Aaron stock when they're not or whatever or somebody's phone number isn't right. Then you gotta fix that because otherwise that just proliferates through the organization and everybody's working on wrong information. So making sure all the information is correct, we're safe time. My final time waster is perfectionism. So if you're really fussy or if the people who work for you are really fussy about things that are not that important, they can waste a lot of time doing things perfectly. I'll return to this when we look at quality later on, because quality can be too good if it's applied to something that's not important because there's not enough time to do everything. So if you're spending time on something excessively on something that's not important, there will be other areas that are being neglected and that will have a cost. So that's a whole load of ideas about where time might get wasted. But remember that with all of these, if you can save time on any of the above, it has to be followed by either shedding people or selling Mawr and doing more with the existing people that you've got 9. The Cost of Low Morale: over the years, I've done a lot of training for different companies, and I got to know the cultures of lots of companies. And it's amazing how much they vary in the level of morale, the level of motivation that you get. So some companies, everybody's engaged, energized, they love it. And other places I go, people just don't really care. They're just going through the motions, and lack of engagement costs you a huge amount of people, your biggest cost on. They're not really engaged. You're losing a lot of time, and you're wasting a lot of money. You're basically employing more people than you need to. There is some research that happy workforces are 80% engaged on. Unhappy workforces are only 50% engaged. So you're losing 30% of your workforce if they're not happy, and that's huge. That means you're employing an extra third of people than you need to, and that's a lot of money. So how can you get your work for us to be more engaged? Well, we're into the whole subject of leadership now, and I've done other courses on this. But if I had to pick a sort of top five, I would say First of all, communication. Maximum communicate should tell everybody what's going on, what you're doing, why you're doing it. You're longer term plans. Maximum communication. It costs a little bit to do it, but it's really worth it. Second, I would say involvement. If you can involve other people in your decisions as much as possible, you'll get better decisions. They will be much more motivated, and it's less work for you as well. So involving people in what you're doing. It's more enjoyable to Why would you not even if you think you know all the answers, ask some other people. They might come up with something even better. You never know. They might impress you, I think, thirdly, to have really clear goals for the organization. What are we trying to do? And that's an important part of leadership, isn't it? It's that vision of where the company's going, so make sure you've got really clear goals of what you're trying to do. Communicated to the organization. The 4th 1 I would say, is to not have fear if people live in fear, if they're going to be punished for making mistakes or have their bonus taken away or even Pap school get fired. If they don't perform, then they won't engage with the system. They'll spend the whole time covering their rear the whole time worrying and a certain amount of energy, perhaps even looking for other jobs. So fear management, I fear, leaves to lack of security on disengagement. And then you're wasting your money paying your people because they're not gonna be engaged . And finally, there's what I call the management potato have done a YouTube video on this but the potato of performance. If you've got somebody who is probably pretty good at their job, they got an area of excellence on. They've got part of their job that is not so good. Management tend to focus on the bad bit, and he criticized because they see that as a problem that needs to be solved. And if you do that, the person will first of all not bother with the good bit because they got no thanks for that. And then secondly, the bit where they get into trouble they'll try to avoid their performance will reduce. They won't do the great bit. They won't do the bad bit now just retreat on. Then they make a mistake and be criticized, and they'll do less on what happens is they just end up doing less and less. And if you criticize someone a lot, their performance will shrivel from the potato of performance down to the prune of performance, and they become a shriveled prune. And it is what people do. Eso a quick example of this I used to play in a band. Andi. It was run by the guitarist. He wrote all the songs and he was actually really talented. But he was a little bit. He was critical of other people. He didn't suffer fools, really, and he used to criticize other things. So, you know, I brought along some suggested lyrics one time, and he went not sure. And, of course, then I thought, Well, I won't bring anymore lyrics. And then I made some posters and he said, I suppose they'll do to we get some proper ones made on. So I just thought, Well, I won't bother without anymore. And he was right. The posters weren't brilliant, but they were better than nothing. At least I did something and then I managed to get us this gig in a pub that turned out to not be brilliant. And afterwards he said that I paraphrase the words he said That was a rubbish gig. You got us, Chris. So I'm thinking, Well, I won't bother to get us anymore gigs then. So I gradually did less and less until all I did was turn up and play on. So if you criticize people, they'll just do less and less until they're just doing the minimum. And I remember him saying This band's rubbish. I have to do everything myself in this band And I'm thinking, Well, I wonder why that is so Even though I knew about the mansion potato, I couldn't help becoming a prune because he criticized the things that I did. So the answer, of course, is to do the very opposite of the potato. So what you should do is first of all, focus on the really great stuff and save the person well done for doing that and well done for getting us that gig in that part and all right, it didn't work out, really. But at least you got the gig, and that's great. Keep getting us those gigs. Chris, that's what he should have said so encouraged. The good on If something bad happens, you can't ignore it. But just say, in this area here, I mean, everything else is fine. There's one area where I think you could be better. It's probably my fault for not having taught it to you. So next time it comes up, I want to show you how to do it. Would that be OK or even just Do you know what you'll do differently next time? Cause I know you can do this and let them have another go. So if you could have a supportive, positive style of management, you're gonna let more out of your people on the last thing you want is a whole team of prunes working for you because you've criticized them. If you're doing that, that's a huge waste of money, and you know that that's just a That's just a huge cost that you've unnecessarily given yourself. And then you're gonna have to employ more people to get the same work done. So get people to be engaged by a positive management style 10. Bureaucracy and How to Reduce It: Another area where people's time gets wasted is bureaucracy, and I must have met. This really is a pet hate of mine. Ah, so I want to say five things about theocracy. Actually, the 1st 1 is contracts. Do you have to have a massive, great legal contract now? Sometimes you do depends what it is. But, for example, Portsmouth council send me a 30 page contract. Every time I do a training day for them. I get this 30 page contract through the post. In fact, I get two copies off so 60 pages on that arrives in this great big envelope, and I have to sign one and post it back to them at vast expense. And the ridiculous thing about the contract is it makes then more liable than me. So it says if I cancel the course and I don't turn up, then I have to pay. But if they cancel the course, they have to pay me now. What's more likely because I'm not gonna failed to turn up. I'm always there, but they every now and then have had to cancel courses for whatever reason. And then they still got to pay me where If we didn't have a contract, they would ring up. I'm really sorry, Chris. We can't even after postponed the course and I'd say, Okay, fine. And it wouldn't matter. I got lots of customers who are like that, and I don't charge them when they postpone or cancel. Of course, I have a day off. I'm fine with that, but with Portsmouth, because that's what the contract says they pay me. So all this bureaucracy and it actually makes it worse for them. The second thing I want to say about theocracy is insurance, and we're living in such cautious times. But do you have to have insurance from your suppliers? So, for example, I go into a training course for somebody on a very small number of my customers. Want to know that I got employers liability and professional indemnity and all those things on? I won't go to loads a detail about this, but basically I'm just doing a training course. Why would I have to have massive insurance? You know, we're not doing dangerous things on. I think what happens is they have standard insurance for everybody. So the people who come in and climb around on the roof fixing the building, You know, they're insured on. They've just said, Well, why don't we just get it for everyone? We may as well. It's simpler. And that sounds sensible until you realize that if somebody like me has to get insurance, I'm going to charge you for it. I'm just gonna add a bit onto my cost to cover the insurance. So it means that all your supplies the charging you a little bit more because you've asked them for unnecessary insurance. So I'm not saying don't have any insurance, of course, But just think. Do we need this insurance for for this person? I suspect when I'm on their premises, I'm probably covered by their insurance anyway. But just check that because in the end, if you make your suppliers have to do something they don't want to do, they will charge you back for that. My third bit of bureaucracy and I'm just giving you examples. Really? Here is purchase orders. So about 1/4 of my customers send me a purchase order for a training course the other 3/4. Don't we just book a day? I turn up and do the course I invoice them afterwards and it's finds never a problem. So why do you have to send me a purchase order now? Maybe you have an internal system and you have to keep track of what's been ordered, and that's fine. But something I find really bizarre is quite often I get purchase orders. After I've done the training course. This arrives in the post, and sometimes I've already invoiced you. And then a few weeks later, this purchase order arrives, and I think, Well, what am I supposed to do with that? And it's got a number I meant to put on the invoice, But I've already sent the invoice to you. So how bureaucratic is your purchasing system? I'm gonna come back to purchasing later because that I do think that a lot of money is wasted by bad purchasing. So I've got a separate video on that. But purchase orders are an example of bureaucracy, so the thing to do is to due process mapping and to draw out a little picture of what gets sent to who Where does the paperwork girl. So years ago at the hospital near me, I was doing a course for them, and I discovered that they have Ah, just have this multi copy thing where you'd right and it would go through into the next copy on the pink. Copies of the slip used to be sent up to the fifth floor and nobody knew why. But when you I discovered what it was when needed overtime or something, when they bought things, they feel that this thing and the pink copies went up to the fifth floor. We don't know why that's what we do on the fifth floor were receiving all these pink copies , and they didn't know what they were supposed to do with them. So they used to just file them, and they had no idea what the point of them. Waas. And of course, the two sides never talked and said, Well, what you said a minute I did. I thought you wanted it. No, we don't want it. So the pink copies for years were filled out and sent up to the fifth floor. Now have computers helped now that we don't have bits of paper and actress No, I think computers have probably made it worse because it's invisible. So you have all these copies of things and emails going around, and nobody is able to say, Look at it'll piling up, Why have we got this now? The last thing I want to mention is tendering, and I've got a bit of an obsession about this. I've got to admit, because tendering sometimes it's great. Put it out to tender, get everybody come for what they sometimes call the beauty parade, have a look at them or pick the best one. That's fine, but I would definitely question whether tendering is the best way to choose a supplier. So I get asked a tender for training, for example. So what's the best way to choose a trainer? I would have thought Get them in and just getting to do a five minute talk or even just have a look at them on on YouTube and see if you like them. But, no, I have to fill out this massive, complicated form which talks me about it. Asked me about my recycling policy and health and safety in my office, which is just in my house, you know, ridiculous questions that don't really apply to me. And then they tried to judge me by how I filled in the form. They don't actually ever meet me. So if you think about the tendering process, first of all is expensive for you because you have to design your tendering form. Send it out, get them back, review them and all of that. It's also expensive for the suppliers. So the supplies like me have to fill out this great big tendering form. And it can take me a whole day to fill out a tendering application because there's creativity it asks for in what way will your course be different? And I have to sort of think about all this. So if it takes me a whole day to fill in the form, what am I gonna do? Notaries. I'm gonna have to challenge you a bit more to allow for that. And if I win, I suppose I win one tender in 10 and it costs 1000 quid of my time to pay for that. To get that money back, I've got to charge everybody 10,000 quid, haven't I? So that when I get one job, I make another 10,000 that pays for the 10 times 1000 I've had to do in all those tenders in order to get that work. So you're not just paying for the time you're paying for the time times five or times 10 depending on what their hit rate is. So what you're doing is you're putting a lot of your own cost in, but you're also adding cost from your supplies because they will charge you more When, when you tender and doesn't even get the right result, you know, does it Does tendering find the best supplier? Or does it just give you the person who's best step filling in forms and looking good on paper? So I think you're paying MAWR firm or expensive quotes, and you're not going to find the best supply. And in fact, the best people won't even be in the tendering process because the really good people don't need to tender I don't do tend is very often I just think well for that particular work. It's not worth my time and hassle to do it, so probably you're choosing badly between the bad suppliers and they're gonna be charging you more for it. So I think tendering really should be looked at. I think it could be a big waste of cost. But remember, if you decide to not do tendering, you'll save some money by choosing better suppliers. But you also, if you're going to save people's time, it needs to be followed by shedding people in the purchasing department or buying Maura's. The organization expands without recruiting more people in the purchasing department. So there we are. That's bureaucracy. What is the bureaucracy in your organization on? How can you get rid of it? 11. Only Have Brilliant Meetings: while we're looking at where people spend their time and therefore the areas of cost, I think a big one. We need to look at his meetings. They're always up there on the hit list of things that people hate and things that take a lot of time. And just think about the cost of meetings for a minute. Suppose you've got 100 people in your company, and you can put your own numbers in for this. I would really recommend actually working this out for your own organization. But suppose you got 100 people working in your company or your organization. And suppose they have C four meetings a week and each one is two hours, so that's 100 times forward. Times two, which is 800 hours a week, are being spent on meeting. So let's say times 50 weeks a year were up to 40,000 hours a year. That is right isn't 800 times 50 is 40,000 hours a year now. What's the cost of an hour of somebody's time? Well, let's be really conservative and just say that they're being paid £10 an hour than that 40,000 hours is 400 k £400,000 or dollars on most people are being paid more than £10 an hour. The people go to meetings, but also the cost is not just the wages, but the cost of employing a person is roughly double their wages because you've got to give them an office, a desk, heating. I t support training management. So most people a rough guide. You can double the hourly rate. So if we just say it's costing £20 how to employ people were up to 800 K You know, call it a $1,000,000 or a £1,000,000 and that's just in a company of 100 people. So that's a lot of money. Now. You can't get rid of meetings if you just completely banned meetings. In theory, you could save a 1,000,000 quid a year. You could make a 1,000,000 quid profit a year, but remember only if we got rid of people or use those people for something else. But you can't get rid of meetings, but you could maybe half them, you know, Imagine if you could Harv, your meetings. That would save you half a £1,000,000 a year on an organization of 100 people, so big savings to be had. So how could we reduce the time we spend in meetings? Now? I've done separate courses on meetings, but just a few thoughts, first of all, invite fewer people if you have fewer people there. Obviously, you're wasting not so many people's time, but also the meeting will be quicker. Second idea is just to make it a short of meeting, Just limit the time. We've only got an hour. We're just gonna have to do everything within the hour. And by the way, dividing a meeting in half gives you both of these. So if you've got 10 people and they all turn up and you're going to talk about 10 things, you know, that's 100. But if you just say we'll have five people talking about those five and five people talking about those five, then you just got 25 25 which is 50. So you've halved everything if you cut the meeting up because usually not everyone needs to talk about everything. My third idea is to have the meeting less often. If you just made it fortnightly instead of weekly. You've half the number of meetings and does the meeting have to be that often? So that's a thought. Fourth idea is to always have an agenda. Always start the meeting with what are we going to cover, even if it's a really short meeting? Or it's being called at the last minute, at least just on a white board just right up. These are the main points we're going to cover. That will make the meeting faster and more efficient. Point number five is to have a really strong chair person. Whoever is running the meeting needs to be strong. They've got to be able to see right. We spent enough time on that. No, we're not going to repeat. We're not going back to previous items, You know? What is your point? You need somebody who's gonna motor it along. Number six always start on time. Don't let the meeting start late, because then you're wasting the time of everybody who's there and just imagine if you've got 10 people and they reach being paid £20 an hour, that's £200 an hour that meetings costing. So if you start half on hour late. You know, that's 100 quid gone. Just like that. Number seven on my list is no red herrings. Don't let people go off onto other subjects. A strong chair would help with that. But I also recommend a little game where you actually have a herring and you could just cut one out of a piece of cardboard or whatever. And if anybody goes off track, anybody else can reach into the middle and pick up the herring and wave it around. And it's just a way of saying, I think we've drifted off track here. Guys, anybody can challenge anybody else with herring, so try to keep on track. Finally, I just want to say, Get some actions out of the meeting, cause if you just discuss stuff and end up not agreeing anything, what's the point? So any actions should be agreed at the time, and then at the end, they should all be summarized. Just go back over. The main actions were doing that. You're doing this, you're doing this. Is everyone happy with that on then? Have a written note that goes out probably by email straight after the meeting to say this is what everybody's promised, so make sure those actions get nailed down at the time. Otherwise, there's no point, so efficient meetings could save you a lot of time on their four money. 12. Effective Uses of Management Time: the next cost waster that's to do with people is management time. Andi managers have a lot more discretion about how they use their time, and therefore they can waste their time more effectively than anyone else on it. Effects. Not just then, but it affects everyone else because management's important in everything they do affect other people. So, for example, politics, you could lose so much management time playing games between departments and having endless meetings give you an example. I usedto lecture on an MBA program at a local university. On there was endless politics between departments is probably not not like this now, But back then we were at the business school and we used to get lecturers in from the I T department on the Finance and the legal department on the people who taught on the law degree didn't like the business school. We were sort of bitter rivals. For some reason, I don't know why, and so we would say, could we have somebody to talk about legal stuff on our MBA course? And they would always send us their worst lecturer, and then they could go the NBA's rubbish, and it was partly rubbish because we had really bad lecturers from the law department. I think the Finance Department was similar and you just thought That is so ridiculous. There was nothing we could do about it. So all that politics just made the product worse and it wasted people's time. There was nothing we could do. We had to accept whichever lecturer they sent us. So politics just gets really negative. Another area that management can waste time is micromanagement. So, you know, do management have to check every expense form? Do they have to open the mail? You know, do they get involved in every little detail? Because that's just a waste of their time and it wastes other people's as well because then , with micromanagement, they're asking all these questions and they start holding you back basically. And I got two examples I want to talk about with this one example was a friend of mine. I went to visit and I was in his office. He's managing director of this big company that redesigns people's offices, very good company, and I was talking to him on. We kept get interrupted by people bringing in ridiculous micromanagement type things and one guy brought in a couple of cushions and was going, Which of these two red colors do you think we should use on the Vodafone job on my friend went. I think I would use that one. And I'm thinking, Why are you choosing cushion colors? You're the managing director. This is mad. And if I said that to him after the blow could go on and he said, Well, any took a minute. But a point is all those little wastes of time during his day. All those little bits of micromanagement all add up to a lot of his time. Probably half his day is taken up by all these little interruptions, and it then stops in being out of a nun uninterrupted big chunk of time where he can really think about important things. So it's probably destroying his ability to be an effective managing director. One other example I had of micromanagement was a managing director in a company who used to like to drive the fault, if truck. So every time there was an emergency and we had three Lorries to be loaded at once, the MD would jump on a forklift and heroically help with the loading on the people in the factory thought he was great, But I remember just thinking he's an idiot. He shouldn't be driving a forklift truck. He's the most expensive fort of truck driver in the world. But also he's neglecting running the company now because while he's on the truck, who knows what else is going wrong on these emergencies? By the way, we're almost every week. So what he should have been doing was thinking, Why am I having to drive this truck? You know what? Why do we only have two qualified truck drivers? In fact, he's depriving one of the other people in the factory of learning how to drive the truck and getting the skill, the challenge on perhaps a bit of extra money for driving that truck. So it's madness. The managing director should not have been driving net fault of truck micromanagement. Of course, it's more fun than than being the managing director, so you could see why he would go back to doing it. But it's not sensible, so management's job is not to do things like that. It's to focus on vision systems and people. So what's the vision of where we're going. Are the systems as good as they can be on other people? Happy are the right people in the right jobs on other happy, and that's all management's got to do. And then they've got to look for any overlaps and any gaps in the systems and any overlaps and gaps in the people make sure everything will just fits together. And that's not an easy job. But that's what management meant to be doing instead of micromanaging. So I'd like you to just think about what percentage of time, a year if you're a manager. What percentage time of you and the other managers in your organization actually adding value on what percent of the time are they just checking on people or interfering or doing stuff they shouldn't be doing? 13. Utilisation of People: Now, I just want to introduce the concept of utilization of people. We're gonna come back to this later when we look at utilization of equipment. So the utilization of a person is the percentage of time that they're working on something useful. So if they're spending 80% of the time actually on the job, then that's 80% utilization. If a machine is actually in a cutting metal 80% of the time, that's what it means. So if you've got a lawyer who has to wait for the photocopier or something, then that's reducing the utilization of that lawyer on. You know their worth hundreds of pounds an hour, so they should never have to wait for a photocopier. If your copy is not very good, get another one. Have to have five copiers. It doesn't matter because the lawyer is worth far more than a copier. What does a copier costume in printers nowadays are probably about two or £300 that's one hour of lawyer time. If you could save one hour, that would pay for a whole new color printer. So the utilization of the lawyer is really important, and if you could measure it and increase it then then you'd be saving cost. Or what about the policeman who has to type his or her own notes up to get back from a new arrest will have to do the typing, and they might be a really slow typing because that's not what they were born to do train to do, not what they're motivated to do. So it's mad that they're having to do their own notes. It would make more sense to employ an admin person who's cheaper than the policeman. Andi is also better at typing and remember, if we can save lawyer time or policemen time, that doesn't immediately become money. But if it means that we can get away with having fewer lawyers or policeman or weaken doom or work with the same number of people, then it becomes worth doing that it's a real saving. What about the help desk who have no calls, as if, perhaps, at some times of day, maybe nobody's firmament sometime of a day? Then that's low utilization for those people. They're not fully utilized. They could perhaps be doing something else, or doctors who are not with patients, doctors who have to do you know, admin work rather than seeing patients that's wasted utilization or sales, people who are not in front of clients. So anybody who's important and expensive a good start. We measured their utilization. You have to do it formally. You could just observe them for a bit and just see what they spend their time on. And just think, Why are you wasting so much time doing that? You might just find they've got a very slow computer or something like that on If you're gonna reduce your costs, you don't want to be wasting the time of expensive resources, so measure utilization and try to maximize it. 14. The True Cost of Staff Turnover: another massive hidden cost that's people related is staff turnover. Most companies don't really regard. This is a cost, but it really is. So if you could understand why people are leaving on, then optimize it, get people to stay for longer, then you could save a lot of money. So the first thing is Pareto analysis. To find the cause is have a list of why people leave. If you could have an exit interview, find out why they leave on of the Tech top. 10 reasons to leave. You'll probably find that two of them will be 80% of the reasons why people are leaving. I did read somewhere that people join organizations and they leave bosses so you might find your top two that we don't like our boss, Onda. We don't like the other boss or something like that. You might find two of your boss's anyway. Do the Pareto analysis. Find out why people are leaving and it might be something stupid like, you know, hassle in the car park or the office is too cold or you know who knows what it is, but you've got to find that out. First of all, and it could be pay. It could be that they're moving to jobs that are better paid. Andi, I really think paying enough is important. I think paying people less is a really false economy, trying to keep people's pay down. If somebody leaves and remember, if you don't pay enough, it's going to be the best ones who leave on every time somebody leaves and is replaced, it's costing you about £10,000 each time it happens. I'll explain that in a minute. Also, if you pay slightly more than the going rate, just only a few percent more than the going rate you can then take your pick of the market . You can have the best people, and that's gonna help hugely, you know, to be less management time or creativity, better products. Everything is going to be brilliant. So just pay slightly more than your competitors and have the best people. That's so much better than paying slightly less than your competitors and then having a large turnover of people at £10,000 a time. So people joined companies and they leave managers. So it's really important, have good management and we talked about this earlier on. It doesn't cost much to manage people well, just to communicate, to listen to them, to thank them. It's free to thank people, involve them in decisions, train them, give them interesting work, give them challenges and you'll get more out of them so you'll get better output as well as the fact that they're more likely to stay so good. Management is a no brainer. I want to go back to that thing about £10,000 for the cost of somebody leaving. Let's just look at the cost of someone leaving. I've heard figures from 5000 to 15,000 to replace a person, and I guess it depends a little bit on the on what the job is on the type of person, how much training is required, that sort of thing. But in general, you get a kind of mushroom shape. I sometimes call this the toadstool of turnover just to make myself laugh, but anyway, it's a sort of mushroom shape. So what you've got? First of all, these you've got the slope down on. This is the reduction in performance of a person who's unhappy, who starting to think about leaving and then you know, they've decided to leave and they're applying for other jobs, and their performance will gradually decreased to almost zero. Then they leave on. Then you've got the flat bit of the mushroom. I'm forgiven upside down mushroom here. Really? So you've got the flat bit and this is the gap when you just don't have a person. So what's the cost of that? Well, you may have to cover it with over time. You may just be losing out on opportunities. Imagine it was a sales person. You've got a whole time when you're not selling and your competitors air getting in. So you've got the gap in the middle is a big spike. I think of this is the stork of the mushroom on this big spike Is the cost off recruiting a new person? So you've got to do interviews, got advertise. You might have to pay headhunters recruitment agencies to find you someone. So the great big cost there, and that's going to be a few 1000 quid. By the time you added up all the interviewing time, that's a big job. And then finally, you've got the slope back up again afterwards, so the new person arrives. It's probably going to be several months before that person is fully effective. They've got to be trained. They're gonna learn how the organization works and fit into the team. So you got a sloping down, you've got the gap. You've got a sloping back up again and you've got the big spike off recruiting somebody. So let's just think about a few numbers on this. Imagine if on average, people stay for five years now that that's quite a long time, actually. But suppose that you've got people who I think most companies is less than that, actually, because you got a lot of people who leave after a year who dragged the average down. But suppose the average stay at your organization is five years, so that's 20% turnover. That means every year 20% of people leave and have to replace. If you have 100 people, that's 20 people a year. You've got to really replace somehow, and if it costs you 10 grand a time, that's 200 grand that you're spending every year on replacing people who leave. And if you could save half of that by decent management, that would save you £100,000. So have good management measure. Do the Pareto on the causes and at least have an exit interview where you say to people who are leaving, Please, will you tell us why you're leaving and make sure it's inform or make sure it's confidential. So they really will tell you there's a problem with the boss You need to know, so make sure you have a really effective exit interview. 15. How to Choose Who to Fire: suppose you found ways to get people to work more efficiently, and that means that you can get rid of a couple of people. How you going to decide who goes now? The first thing I would say is always involve HR and your boss, so don't just watch this video and do it. But I think we really need to think properly about who we're going to get rid of. It's a really key decision. So first of all the wrong ways to select who goes well, one wrong way is last in first out. Whoever was the last person get rid of them. I think that's just not sensible. I know they might be the cheapest person to get rid of. What may be the last person was was really good, another wrong ways to get rid of the easiest person to get rid off. Maybe you've got somebody whose contract is not very strong or somebody who you know won't cause a fuss. I think that's a really bad way to choose who goes because they might be a good worker, Another bad ways to get rid of the cheapest person to get rid off somebody who's got the short of service, for example, maybe you don't have to pay so much redundancy. But for the sake of a little bit more money, maybe you should get rid of the person who is not as good. So getting rid of the cheapest person, I think is a really bad way. Got to other bad ways. Getting rid of the most expensive person. So I've heard of, for example, mawr expensive teachers being fired. The more experienced ones are the ones that get rid off. And that just seems mad because they're your best ones. So getting rid of the person who costs most is not sensible. Imagine getting rid of the most expensive sales person. That would be stupid if they're the one ending a big bonus because they're really good. And finally getting rid of volunteers. Never see that's an easy way and a nice way to get rid of people. But the ones who volunteer are probably going to be the people who can easily get a job somewhere else because they're the best ones. So I wouldn't do any of those things. What I would do, I would choose the right way to select who goes, and I would do this by measuring their productivity. So who is the most productive person and keep them on the one who is least productive? Who does the least useful work get rid of them on? I don't mean shorter working hours. I mean the actual amount that they do, and that doesn't mean you have to measure it. So if they're off sick, that comes off their productivity. If there work rate is slow, that comes off that productivity. Based on real facts that you measure on before you get rid of somebody, give them a chance to fix the problem, so trained them and say to them, Look, if you don't improve, then we might have to get really you But they need to know what's coming to suddenly fire somebody, I think, is pretty harsh. I think you should give him a chance, and you should give him the training that they need as well. And I think you should give them good management and the right tools to do the job. There's something else called compromise agreements, which are interesting, so having decided that has a particular person who's not performing very well, Maybe they're not bad enough to actually fire for incompetence. Maybe they're just mediocre. How do you get rid of them? On the main method these days is a compromise agreement, which means, basically, you just pay them to go. You say, How about if we give you, say, three months pay just to resign? Would you do that? Andi obviously talk to HR about this, but compromise agreements are a pretty painless way to get rid of somebody. There's no risk of legal comebacks, or they can't claim unfair dismissal or anything like that because you just agree a price on although it sticks in the throat slightly to give money to the worst person, it pays back really quickly because once they've gone, you're saving their salary every month. So if you have to pay a bit more to get rid of somebody, it's worth it. You need a strong HR department. It's so key. You need to have somebody who's gonna help you to do it on. Always consult HR and your boss before you do anything to do with people so important. Don't just fire somebody. Always check with HR first 16. Better Alternatives to Firing: I've already been mentioning. This is a theme throughout this course, but if you are going to save people's time and is a big cost, you've really only got two choices. And one is if you've saved people's time, is then to get rid of some people. So if you can save 10% on on the time required to do something, you can get rid of one person in 10. But before you get rid of somebody, there are some better alternatives, and the 1st 1 is sell more. So if you could use those extra people to do more work to sell it and do it, then that would be great because they're probably good people. Although if you're going to get rid of one in 10 if you get rid of the worst one of the 10 there might be somebody quite bad. You get rid off, but if you got 10 good people, it just seems a real shame to have to get rid of one of them. So sell more instead, you know, do 11 people's work with 10 and so I would start with and soft Matrix and I would think we've got existing products. What other markets can we sell? Those two. But I'd also do the other and soft thing, which is what new products will come we come up with to sell to our existing market. So new products, new markets, but not both on you could also get a few more salespeople sound mawr. And then you could keep your operations people instead of getting rid of them. Because you could just do more with the people that you've got. You could advertise more or you could have clever marketing. You could make strategic alliances with other companies, even merge with another company. Perhaps, and there are things like affiliate marketing while the people recommend you and you recommend them and all that sort of thing. Clearer calls to action on your Internet marketing. You could do split testing to work out which adverts amore effective. You could get more referrals, but there are a whole load of things you could do to sell more, and then you wouldn't have to reduce the number of people you've got. And it's just a real shame if you start getting into a loop where you get rid of people and then less happens, and then you got this money, so you have to get rid of more people than you just spiraled down. So be really great if you could somehow grow the business, but keep the same number of people. The other option you got is to keep them and provide a better service to your customers so you could give a quicker response and a higher quality service. You could spend more time with your customers on. Initially, you're perhaps not making so much money. But if you're giving a better service, what will happen is you'll either end up selling more or you can charge more for that service. So I suppose you ran a shop and you managed to save a bit of staff time. They didn't have toe stack. The shelves will do the admin or something. They could spend more time looking after customers. And instead of just getting rid of one of your stuff, why not keep them all? But give your customers of really great service and hopefully you'll get more customers or you can put your prices up. So consider that, at least so either doom or or do it better. And at least give the staff a chance to do that kindof pay for yourself or you're out. But that sounds pretty harsh. But you could say to them, Look, you know, we've either gotta sell more and do more or we've got to do better quality. So can you do that and get them to be involved and understand what you're trying to do? I mentioned earlier on at the university how they decided to cut the department I was in in order to save costs, and in the end, it cost them more money. But what it could have done was say, if you could do try since March and we'll split the profit with you, then we're all gain on. We would have been a profitable cost unit on. We would have been up for that if they'd only talk to us. But we didn't know anything was happening until suddenly one day you're being cut on. I'm just thinking, if only date said to us, you've gotta pay for yourselves or we're gonna have to cut you. We would have found ways to pay for ourselves, but they never consulted us. So those are my two alternatives to getting rid of people doom or or provide a better service to the customer 17. Reorganisations - Good or Bad?: The final way to save costs on people is reorganizations, and I've separated this out. I've put it at the end because I don't agree with reorganizes. Not usually. Occasionally you need to reorganize the company. You know, if your market has really changed and you have to change the the outward facing part of the organization, then OK, fine. But reorganizations In order just to save people, I think they just never work. I've seen so many bad ones. All that happens is the result in uncertainty and fear on the good the good ones leave. So I mentioned prices lower earlier on the square root of people produce 50% of the ideas. So if you re organize a company, you've got 100 people. You'll find 10 of those your key people, and they will be the ones who leave. Because they just think I don't need this. I can get a job anywhere on their leave and you'll lose 50% of your ideas and your output. So reorganizations are really damaging on those people will go and you'll really struggle to replace them, and other people don't move into the gaps. All that happens is that less gets done. So what happens is that everyone just withdraws into their shell and waits to see what happens. And on all new developments, go on hold maybe for a year. While the organizational happens, you can lose a year of time on. That's just that's a huge cost. And after you've done the reorganization, some areas will be worse afterwards. If you just throw, the jigs are up in the air and it all falls in different pattern. Some areas will be better and some will be worse. And that's just crazy. So it seems to me that firstly, you should only do a reorganization if there are external changes forcing you to have a different structure, and that's not normally why they do them, but also better. What you should do is don't just throw everything up in the air, but measure each area and it's back to Pareto against, and it just target the areas that need sorting out. Rather, throw everything up. Just focus on where the problems are, target those and sort them out. The areas that are working well, leave them alone. So I'm really against reorganizations. I don't think I've ever seen one that was a good idea and has worked. Certainly question it massively before you do it, because if you could do selective targeting, it's got to be better. 18. Wrap Up: So we finished the section on saving money via people. People are your biggest cost, but the difficulty with this section is that any changes you make have to then be followed by getting rid of people or doing more with the people that you've got, which always feels like a bit of a shame. But nevertheless, people are your biggest costs, and if you can save, you know 10% on your people cost, that could double the profitability of your organization. And if you're making 4% profit and the people price goes up by just 2% half your profits gone, so people are a significant cost. And although it's not easy, I think it is really important to question the cost of your people. But there are other areas where you can save money as well, and that's what we're going to get on to next. 19. Introduction: so we've looked so far and how we can save money by saving time, the cost of our people. But now we come toe all the other areas where you can save on your costs, so let's get started on those. 20. Stock - The Hidden Curse: The first area that I want to talk about in terms of saving costs is the cost of stock. Now I put this first not because it's the biggest, and in fact, it may well not be the biggest for you. You might not even have any stock, but some companies have quite a lot of stock, and it's it's an easy thing to reduce on. It can be really, really important because stock actually is much more evil than you may realize. So I've got a whole list here, which I'm going to quickly zoom through of reasons why Stock cross to money. And then we'll look at how can you reduce the cost of stock? So firstly, just finding things. If you've got lots of stuff stored in a warehouse, there's this time and effort in finding it. Then you've got a rotate the stocks you got to keep an eye on what's the newest? What's the oldest dates moving around that sort of thing. Then you gotta count the stock every now and then. You probably have stock checks every quarter, or at least every year where you checked. You have got what you thought you had then Number four. You've got the handling of stock. You've got to put it away and you got to get to the one at the back and all that sort of things that it's waste there. Then there's the capital tied up in your stock because that money could be doing something for you. It could be better invested in something profitable, getting interest in a bank. It could be ideally put into some other part of the business. That's a waste of capital tied up in just stock that sits there. And then there are problems with stock, so number six it it can get pilfered on. Even the most bizarre, Boring things do get stolen by people because they can sell it. So pill fridges a problem on damages, a problem. Stuff gets knocked over or bumped into, and things and deterioration is a problem, so it probably gets damp. You know, the packaging gets not that sort of thing, so deterioration is a problem. There's also obsolescence, so stock it's out of date. Imagine you had loads of stocking and something changed. You brought a new model, and you've got all this old stuff piled up that you made earlier, so obsolescence can be really scary with stock. Number 10 is the space that it takes to put it in. You could be using that space for something else. Perhaps you're having to rent that space, so that's crazy. Number 11 is the heating and the lighting required in your warehouse. That's a significant cost. And to keep the to keep it dry, you often have to put quite a lot of heat in there. So it's number 11. Number 12 is is a more subtle one. Actually, Number 12 is the fact that it hides inefficiency. So what happens is that if you've got stock, then you can afford to have really long lead times for making stuff, because it doesn't matter because you just replenishing the stock and then yourself from stock. Imagine if you weren't allowed to keep stock and you had to just make it for the customer, then you'd have to get your production process speeded right up, so lead times can get longer and longer if you hold stock. And, of course, the longer the lead time, the more stock you have to hold as well to take you a year to make something, you gotta hold a year's worth in stock. But the other inefficiency that stock hides is quality problems. So if one in 10 is unreliable, then all you do is you just make 11 and have them in stock. And if you get a duff on, it doesn't matter. You can just get another one, so it hides quality problems. But if you're making it for the customer, it's gotta be right. 21. Is a Central Purchasing Department a Good Idea?: the next way that is well worth investigating for saving money is to be better a purchasing . If you can save money on your purchasing, that's straight on the bottom line. So if you're spending 90 and you're selling it for 100 and you're making 10 if you could get that 90 down to 80 by just buying stuff cheaper, that's instant profit. You've doubled your profit, and it's quite possible. And if it's costing you 90 you'll probably find that about 40 or 50 is labor on the other 40 or 50 is stuff that you buy in. So to be better, a purchasing is really key in an organization. And I've got a bit of obsession about centralized purchasing in that I don't like centralized purchasing, and I want to tell you why that is, because in theory it will be a good idea, wouldn't it, to have specialised purchasing people to bulk it altogether to have economies of scale? But let me tell you why. I think it's worth being suspicious about centralized buying departments. The first thing is they cost money. You're gonna have people full time doing buying, and they may not be fully utilized, so I know that somebody's got to do the buying. But if you could have people who only do buying what happens when there isn't any buying to be done and they might be an empire, they might build themselves up, employing more people and find reasons why they need to get bigger. To justify their existence on that is a risk. I think the second problem is they don't know about the the detail of daily use, the reality of daily use. So an example of this? The ambulance service near me. They've got all sorts of complicated equipment on their ambulances, and they drive out and they do Brilliant work on the problem is that this equipment is bought by a central buying department and the buyers are not paramedics. They don't understand the technical side of things. Most of them, I guess, and they don't know what it's really like to be out there so that they had a piece of equipment. Think it's called a Kanye later or something, and they used to have an old manual, one where you know that's the middle of the night. It's raining, it's dark. There's a car crash and they just want to turn the dial and do this thing on. They've Bean bought a really fancy Elektronik one now where you have to key in all these numbers, and you can't do that in the middle of the night when it's raining and somebody's about to die. So what the ambulance service do is they're still using the old ones, and they're swapping them over between the ambulances again. A used ambulance number three. And they move all the equipment across on because sometimes when they get there, they forgot to stop it, and they got the new one that they hardly know how to use. But so they've spent mawr for equipment that is, in theory, better. But it's actually not because the people who buy it don't understand the reality of the daily use. So it's just best just crazy. And the ambulance people are so frustrated by this central purchasing. Another problem with central purchasing is they often force you toe have what's not perfect for you. So they have a standard system like we're always gonna buy our petrol from shell because we've done a deal with Shell and then now you are you're the sales person out on the road driving and you can't find a shell station. Maybe there isn't one near where you are. So so the cost is much larger than you'd expect. I've got another brilliant example actually, of this, which is a cleaning company. I know the Central department found a way to buy slightly cheaper bin bags, and they use hundreds of thousands of bin bags a year. So if you can save, you know, one penny on a bin bag, that adds up to a lot of money. So they're buying these cheaper bin bags. And, of course, what does cheaper mean, and it actually means thinner. So the guys I got these thin have been bags. So guess what they dio and the arteries. The BIN bags are more likely to break, so they use double bagging, and they just use two bags instead of one. So what they've done is they've pretty much doubled the cost of bin bags by going to the thinner one because they don't understand the realities of daily use. It's difficult for the central person department, isn't it? Because they don't know the realities and they don't know about the hidden costs. So if they buy in, for example, cheap training, they don't realize that that's going to be less effective. And it's therefore not gonna be worth even, perhaps doing the training or you're not going to get the benefits from the training. So I'm not blaming the people in the central buying departments, but I'm saying that I think it's very difficult for it to work, and it can be really quite de motivational. You know, if there's a car policy that tells you can only have certain types of car for your sales people, that can really upset them. And you might even end up losing really good people. And the fact that the paramedics weren't consulted about the Kanye later things meant that they felt undervalued. They felt that they know nobody really cared what they think. That may not be the case, but that's how they felt was quite de motivational. And then, of course, you've got the problem that Central Department central purchasing departments tend to put regular supplies through a tendering process, and I've already talked about this earlier on It cost you lots of time, and it just gets you the worst people to bid because they're desperate for the work and you end up paying a higher price because they factored in the cost of the tendering. So the tendering process is not going to get the best results. So what I would say is save money on buying by doing mawr efficient buying on the big thing to do on this is to negotiate, learn about negotiating, maybe take my negotiating course or somebody's whoever's on become good at negotiating. And I found certainly in the UK that most people don't negotiate. I think it's probably the same in America as well. People don't negotiate, they ring me up and they say, How much will this cost? And I tell him and you go OK, then occasionally they say, Or do I suppose you could do a cheaper and I go, I can't. I'm afraid to go. OK, then on I would have negotiated if they'd known how to do it. But they don't even try. The other thing they do is they just get all will think about it and they never get back to me because they've probably gone and bought something cheaper and less good from somebody else on what we could have done was negotiated, and they could have had me doing that job for them for a little bit cheaper if they'd asked . But they don't ask. They just go somewhere else. So my experience has been that most buying departments don't negotiate. Andi. If only they did so make your buying more efficient, not by centralizing it, but by negotiating. 22. Are Sub-Contractors more Expensive than you Realise?: the next cost reduction subject I just want to look at is subcontractors. Is it cheaper? Toe? Put something out to subcontractors on. Sometimes it is. But I would be really careful about sub contracting because I think there are hidden costs and it might not really be cheaper. I think you will be very careful about using subcontractors on a long term basis. So getting somebody in to do a trip day of training, then? OK, fine. Why not? Because you probably can't have an internal trainer who is going to be fully utilized doing training courses every day. So to get a guy in for a day or a lady to do a training course, why not? But if you've got consultants or whole departments contracted out, you know, long term you might have consultants in for months or even years, or contract out a whole department. That starts to be a lot of money. And I would really, really question that on a way to save money if you've got consultants or contractors is just to cancel from now, they claim economies of scale. But let's just think about that before you know it, you've got regular contractors working in your business on there under the raid radar, they don't get counted. They're not part of the headcount. They're just they're doing their thing. And so you think we got a really lean organization? We only have 100 people, you know, plus subcontractors. So I gotta be careful when they could be a much higher cost than your regular employees. The day rate for subcontractors could be It could be five times what your employees cost on . I think because they don't appear is a fixed cost or on the headcount they get for gotten. So you got to keep an eye out for those on Remember, they have to make a profit on top of the costs on. They'll make that profit from you. So there's a cost of them doing the work. But they have to charge you more than that. So they're going across doom or so that they can make a profit. They'll claim that that's okay because they have economies of scale. So if they're part of a really big company, the idea is they can do the work for you for less on, then still make a profit and still be cheaper. But really, you know, I'm actually not sure about economies of scale. I pretty much always charged my bigger customers more on my smaller customers, less so larger. Companies are probably paying mawr for training and you know, So where's the economy of scale in that on, I reckon I buy my paper just me buying my printing paper. I buy it cheaper than the really big companies because they can't find very many people who could supply such large amounts of paper. It's actually quite hard from to buy paper or as I could buy anywhere. So I actually think that economies of scale are quite questionable. And I don't believe that subcontractors a cheaper because they're part of some huge organization with lots of management and politics and everything required. They have a much bigger pyramid of management If they get to be a bigger company. They also claim economies of skill. They claim that they will be better at it than you because they're a big company and they've learned from lots of other areas, and consultants sometimes do know a lot about stuff, but quite often they know a lot about stuff, but not about your business, so I'm not convinced that getting outsiders in is going to mean you get a better job. The other thing is they don't really care about your customers or even the long term future of your business the way you do so they just want to make some money this year. But you probably actually care about your customers. You have relationships, but you don't have that if you got subcontractors dealing with your customers. Another thing I've noticed with subcontractors is that they often reduce their quality once they've got in, so they'll pitch that you're going to get 10. Of course, 10 out of 10. They'll probably started eight and get away with that and make a bit more profit because of it. And then they'll probably finish it about five, because once they're in, it'll just drip drift down from eight down to five. Maybe for the last few months, when the contract comes up for renewal there, push it back up to eight or nine again, but most the time they'll probably sneak it down to five. I've seen that so many times, and the other thing is they have their own agenda which is not the same as your agenda. So they might want to learn about certain things for there for the rest of their business. They pull information out of you or they might want to grow, or whatever it is they're trying to do is probably not the same as your strategic objective . And once they're in, you can't get them out. It's very hard to go back once you've lost the skills. Once you've got really your people or cheaper them across or whatever, you have lost those skills. And if the subcontractors leave, how you're going to get that back? And I would say even profit sharing with subcontractors is a bad idea. I know organizations and where the subcontractors say, If we can save money for you, we'll split it And you think, Well, how could I lose? But the problem is whose idea? Wasit. All the things that you were going to do anyway, You're gonna have to give half that money to subcontractors, and quite often when there's a meeting, they just have one person in the meeting, and then when you will come up with something brilliant, they go right well, we're having half of that because Fred was in the meeting. So even profit sharing. You've got to be really careful, by the way. That's completely different to hiring a guy in to come and look at your costs. A friend of mine will come into organizations on suggest cost reduction, and he will split the cost with you. If he can show you that he saved it, then he and you will split it half and half. Now I think that's brilliant. But if you got long term subcontractors in everything you do, they will take half of the money, and I think that could be fatal. So I'm thinking it's probably better if you can have full time employees doing the work or if you got peaks in workload instead of subbing it out, work overtime or even cancel some of the work. But I think once you get subcontractors in, it could be a lot of money, and it's got to be better options than that. So be really, really careful before you hire subcontractors 23. What Is Your Optimum Quality?: So in this video I want to explore quality, the cost of quality and particularly could re save money by adjusting the level of quality that we provide. So this could be the quality of products that we're making or the quality of service that we're providing to a customer if we're providing a service. So let's just explore the relationship between quality and cost. So if I was to draw this graph here, let's say this is quality from north to 10. Okay, so nor is completely rubbish. Useless quality all the way up to complete perfection. Absolutely nothing wrong with anything that we do. What shape will the graph B? So just for a moment, just think to yourself about what shape you think that graph will be. Now I ask people this on training courses all the time. Andi, they never get it right. And that's amazing, because you would think that you would know what the relationship is between the cost of providing a service on the quality off it. You'd think people would know that, but amazingly, they don't. So I will now reveal that there are two components to the cost of quality. So the 1st 1 is what's called the prevention cost. On the graph for the prevention cost is this shape. So as we improve the quality, the cost of achieving it, the cost of preventing anything going wrong goes up and it goes up exponentially. So to start with, it's quite easy. But as we get to this end, it gets more and more expensive to try to reach perfection, and we never quite reach complete perfection. If you imagine cleaning the street, to get it from terrible to quite good would be fairly easy, wouldn't it? But to get from 8 to 9 or 9 to 10 you'd have to be polishing every part of the road and a soon as somebody drops a cigarette and you'd have to quickly pick it up, and it would just become ridiculously expensive to achieve complete perfection. So that's known as the prevention cost of quality. And that's the first curve. And I think most of us intuitively know that. I wonder whether that's what you guessed when I asked you earlier. But the tricky thing is, there's another curve that gets for gotten on. This is what's called the failure cost so the failure cost is this shape. So if you're quality is completely rubbish, you have a very high failure. Cost on on that cost come from things like complaints having to redo things, losing business, possibly even getting sued. So a whole load of costs of failure on then, as the quality improves, you could see how the failure cost will gradually reduce and eventually become almost zero . When you get to 10 there's pretty much no failure cost. So it's that shape on the failure. Cost is invisible in most most organizations. So most organizations they know they have complaints, and they have to redo things. But they don't really put a cost on those complaints that it put a cost on reworking things or having to redo or losing business. It's just one of those things they live with, so the prevention cost is very carefully monitored in their budgets for training and budgets for buying new equipment. But there is no budget for doing stuff badly. It's just it's just ignored. We don't want to think about it. So the total cost of quality is these two added together, so if you add them together, what do you get well, clearly, at this point in the middle of five or six, it's going to be double that, isn't it? Because it's that one Plus that one. And clearly when we're over here a 10 it's just going to be that because this is down to zero and over here is just going to be this because this one's down to zero. So what you actually get if I can draw this is a U shaped curve, So the total cost of quality is U shaped. I wonder whether you guessed that when I asked just now. So what this means, then, is that the cheapest solutions to be in the middle at five on if we get worse, it gets more expensive because the failure costs start to become larger and larger. And if we get better than five, then it also gets worse because the cost of achieving it goes up. So you might think, Well, clearly we want to be in the middle. And if we could measure our failure costs, we want to be at the point where the failure costs equal the prevention costs. I'm just gonna call that I'm going to say f equals P. So when the value of all of your failure cost, if you added up the cost of all of your dealing with complaints, if that was the same as the amount of money you're putting in to try to prevent complaints than that would tell you where to be. And that's great. Except it's not the answer. And the reason for that is, what if I went from, say, goaless five? If I went from 5 to 7, if I went to hear, would it be worth doing? And if I didn't do it? What if one of my competitors did it? Because to go from 5 to 7 only adds a small amount of cost. It has quite a lot of prevention costs, but because I'm reducing my failure costs overall, I don't have to go much our patrol in terms of my costs. But I've got a much better service or a much better product, and people will prefer to go to my competitors if they do that and I don't so there is a competitive force that moves you to the right, and a good way to think about this is to add one more line. I know this diagram is going a bit crazy now, but I'm hoping it's still making sense. So this line here is either the price that you can charge for what you're doing or the quantity that you sell because if you keep it at the same price, but you make it better, your sell more so price or quantity and in fact you could just call it the value to society . So if you're talking about cleaning the streets, for example, there's no profit in cleaning them better. But it would make the world better. But the question is, is it worth spending an absolute fortune to make the streets even nicer? And you start to get diminishing returns where it's just not worth it? You don't have to polish every single part of the road, so price or quality or if you like value added value to the world. But if we just think in terms of profit, that's obviously a good place to be at five or six. But if we move up to seven or eight, you can see we're actually making more profit because our costs only go up a little bit. But the value goes up quite a lot, and that's why the ideal place to be is at seven or eight on. The best place to be is where your prevention costs are roughly double your failure costs, so the prevention cost should be twice your failure costs. So, yes, you're gonna have to have some complaints because nobody's perfect. But you should be spending twice as much money making sure that nothing goes wrong as you do on your complaints. And that's the right place to be. If you go beyond there, then you know, towards this end of things, you start making less profit or adding less value to the world, because the cost of doing it starts to get really high and people aren't prepared to pay that much for it, and eventually it becomes lost making. So the moral of this diagram, and this originally was came from someone called Taguchi on this is not notice Taguchi's theory of the cost of quality. If you want to google it, the learning points from this, I think of first of all, never be below five. You never let your failure costs be greater than your prevention costs because if you're over here, that's just crazy. You know, you've actually got quite a high total cost of quality, and you're not providing a very good service, your customer and that's your profit. And nobody's really happy. So first of all, never be below five. If you spend a bit more money making it right, a bit more prevention cost, then you will actually end up with a reduced total cost of quality so askew. Spend more of this one a bit more prevention, but more training, better systems employing better staff having better machines. If you do that, your failure costs will come down and your overall cost of quality will come down. So it's a complete no brainer to not be below five. And then the second thing to learn is maybe you don't want to be a five or six. You want to move across up to seven or eight to optimize. And then, thirdly, don't be above eight. Don't go for nine or 10 unless you want to have a real niche. So, for example, Ferraris are probably right up here, and they don't make much profit because they don't sell a very large quantity. But It's what they love doing and they're happy and they make a decent profit, of course, But really, to maximize your profits, you'd be making BMW. She wouldn't be making Ferraris Now. Just the final thing to say about this is that I was mentioning earlier that the prevention cost is very well known, and there's always downward pressure on this. Save money, spend less, cut the training, use cheaper materials, etcetera. There's always downward pressure on their, you know, by thinner bin bags. But what they don't realize that they never measure is that as you do this, you're also going up on the failure costs, and people are going to be double bagging and everything else. So this is the invisible bit that gets forgotten. So don't be one of those managers whose always just trying to reduce this if you can remind yourself about the failure costs and the best way to do that is to measure them, get a list of all the things that go wrong but costs what is the real cost of dealing with a complaint? What is the real cost of losing business or having to deal with all the hassle demotivated staff because they don't like using bad equipment. If you could book costs, just estimate rough figures for those. Then you can counteract that tendency because you can then get the proper U shaped costs. And then it becomes obvious you don't want to be below five. You don't really want to be below seven. So scientific approach to quality measure your failure costs. Aim for seven on the curve. Aim for the place where you're spending twice as much preventing failures as you are having to pay for those failures, and that's how you minimize your cost of quality. 24. Effectively Managing Queues: the next cost that many businesses have quite a subtle one. You may not have noticed it. It's the cost of cues, the cost of having to wait for things. Now there are two costs associated with queuing. The 1st 1 is the effect on the customer because they don't like it, and the 2nd 1 is the cost of managing the queues. So let's look at the effect on the customer first. There is a risk that they won't buy so much because they have to wait for it, or that their go elsewhere and examples of cues. Because sometimes you may not realize these accused. Obviously, there's waiting for parts or waiting for a finished product. So you get cues halfway through. Your company is you wait for the previous person to give you whatever it is you need. There might be waiting to get your car serviced so you could be waiting for a service When you phone up the telephone help line. That's a cue, even emails, A kind of a que because when you email somebody, you have to wait for them to go through their other 100 inbox before they get to you or waiting to see a doctor, so it's not actually a physical que but a waiting list. Suppose you gotta wait a month to see your doctor. Really? You're standing in a queue, moving forward slowly for a whole month. But luckily, you could do other things while you're curing. But that is still a que Andi Customers don't like those things and you can lose business. If your customers are having to wait. Now I'm gonna come to what can we do about cues in a minute? But that's one of the costs of cues. The other cost is the cost of managing the queue. So some businesses spend ages moving. Some people forward if they complain or if they're importantly, move them forward in the queue. But that means others have to wait longer so the average doesn't actually change. You just waste lots of time moving people around, and in fact, the ones who get moved to the back are gonna be even less happy. And none of the people in the queue a happy. So there's the cost off apologizing to those people. Andi, therefore possibly the loss business that you're going to get most of the unhappy customers . By the way, they don't tell you they just tell lots of other people, and then they go elsewhere. So you know that's lost business because of the queue. So you having to manage this Q on it. Be better to put the cost of juggling the people into having some spare capacity on. This is where we get to the arts of accuse and adulteries. You need to have some spare capacity so that you can cope with variations in demand. Now there's maths around this that we don't need to go into, but basically you need 20% spare capacity to keep the Q down to only four. So if it takes, let's say, 10 minutes to sort somebody out on the help line if you have 20% spare capacity. So that means that you can cope with, Let's say, 10 calls an hour and you've only got eight coming in. So you got 20% spare capacity. You will have a waiting que of four people. If it takes 10 minutes to deal with a person, that's a 40 minute wait. So the question is, do they mind waiting that long on? If you've decided that they can't wait 15 or 20 minutes, then you need to have more spare capacity. The only way to get rid accuse completely, by the way, is to have double the capacity that you need to have 50% utilization. So if you've got 10 calls an hour coming in and a person can deal with five calls, you might think you just need to people. But you actually need four people if you're gonna have no waiting time at all for your customers if your customers are really important. But it's worse if you go the other way. Imagine if you cut your spare capacity from 20% to 5%. Let's say somebody leaves and you don't replace them and you think, Well, we can still just about cope. But if you've only got 5% spare capacity, so that would mean, for example, that you can cope with 20 calls an hour on, you've only got 19 coming in. You probably think, Well, that's fine. But if you only have 5% spare capacity, the Q goes up from 4 to 22 people having to wait five times as long. So I would say almost never. Is it acceptable to have only 5% spare capacity, You should have probably 20% spare capacity, which gets the Q down to four. And you should consider going right up to 50% spec capacity when the Cougars down to zero. So queues have mawr costs than you realize, and it might be worth putting some extra money in to keep those cues down. 25. Bottlenecks: The next area I want to talk about is the idea of bottlenecks on the money that you spend on non bottlenecks being wasted. So let's imagine that you've got a process that just has three stages on the first stage of your process, and this might be coping with orders coming in. Or it might be cutting material. Or it might be going out to sea customers. Whatever it is the first stage of your process you can cope with. Let's call it 10. This might be 10 people in our 10 people a week or whatever. I'll just call it 10. Okay, The second stage can only cope with seven on the third stage can cope with 12. So I got 10 7 12 Now, how many people can you deal with per hour or per week and adulteries? You're limited to the bottleneck, aren't you? You're limited to seven because the second party or process, can only cope with seven per week or per day, whatever we're measuring. So we're limited to only seven. Okay, that's the first thing to realize. So if you can work out what the bottleneck is in your business, that will tell you the most that you can ever do. So the first thing is that trying to improve the 10 is a waste of time. If you spend money trying to make that 10 into an 11 it's a waste because you can only ever do seven. All right. The second thing to realize is that trying to maintain the target of 10 with overtime and management is also a waste. In fact, it can drop to nine or eight sometimes, and it doesn't matter because we're never going to make more than seven. So don't worry about over time and a lot of management in that area, because if the 10 drops to nine or eight, it doesn't matter. We're only making seven anyway. The next thing to realize is that saving money on the seven is mad. So if you try to employ a cheaper person on the seven or you cut corners anywhere on the seven, if at seven goes down to six, then the output of the whole system has gone from 7 to 6. So it doesn't sound too bad if the seven goes down to six, but the point is that your whole system is only gonna make six rather than seven on your system is the whole company, so that could be thousands and thousands of pounds. Imagine if your whole company went from seven down to six, you know, reducing just one machine. One person. That bottleneck could cost you. It could be a £1,000,000 an hour because that one little bottle neck is effectively strangling the throughput of the whole company. Which is pretty scary, isn't it? And it basically means it would really be worth spending a few extra £100 to make sure that bottleneck stays at seven or even goes up to eight. So don't save money on the seven. Save it on the 10 in the 12 but don't save it on the seven. The next point is depending on sales. It could be worth making the seven into an eight or a nine or a 10 because clearly, if we could make the seven into an eight than the whole process can cover eight rather than seven. Because we got the 10 12 they can easily do eight, so it could be worth spending a bit of money or putting some management focus into improving the seven, but only if you've got enough sales. But there's no point in trying to get the seven up to 12. Anything beyond 10 and you're not going to get it because you're gonna have a new bottleneck. And then the final thought about this is that if we really are Stark with 10 7 12 then maybe we should get rid of the 10 in the 12 and move them down to seven. This is called balancing flow rather than capacity, and a lot of these ideas came from an amazing book called The Goal by Eli Gold Rat, and I'd really recommend reading the gold. You can get it from Amazon for one p or whatever. It's a fascinating book, so balance flow, not capacity. So the idea is that there's no point in being able to do 10 and 12 either side of the seven , so you could move those people or redeploy those resources because that's just waste. And you could move the 10 and the 12 down to seven, or maybe just move them down to eight. They got a little bit of spare capacity there still, because if you move them down to seven there is a risk on a bad day, they might go to six, and then you've lost that for the whole process. So move the 10 and the 12 down to eight would be the best thing to do on that would save you money. So if you're looking for cost reduction, you want to target the 10 in the 12 not the seven. If anything, spend a bit more on the seven and get it up to an eight. So the moral of this rather strange little section of the course is understand your bottlenecks workout way. A bottleneck is look after the bottleneck and cut costs on everything else. 26. Poor Utilisation of Assets: another area of wasted cost is poor utilisation of assets. Now we talked about utilization of people earlier on, and this is really the same. But it's equipment. So something like operating theatres. If you're only using them half the time. That means you could have half the number of operating theatres and still be fine. So you're wasting all of that cost. It could be laboratories. You know, What is the utilization of your love arches? Have you ever measured how much time they're actually being used? It might be forklift trucks. How much time of those forklift trucks actually driving around? Do you need to hire quite so many? Could you cut the cost on the fort lifts eso? You could just measure the utilization of those and certainly don't buy another one if you fought. Lifts are only 50% utilized, even training courses. And quite often I do a training course. And you know, I could drop to 20 people and I get there and there's six, and you just think, Well, why didn't you put another 14 people on this training course? So that's just wasted money, you know, Probably book another course in a few months time for another six people. So that's an asset that's not fully you've utilized. I wouldn't worry about too much things like printers, for example. I wouldn't worry about them because they're cheap. And it doesn't matter if a printer's not being used. Eso you want to keep your cues down by having plenty of things like printers. You don't want people queuing up for a printer because then you get worse utilization of your people. You don't want the printer to be the bottleneck that slows down the whole system. So for cheap things have plenty. But for expensive things, measure the utilization so you don't want to do rationing of things like not enough paper for the copier. And I mentioned earlier on that they used to ration the paper that we had at the university , and that was just ridiculous. And if you do try to ration paper, then people will only horded you're never gonna win. So don't rush in the cheap stuff. Have plenty of that. That's just a tool for the job. But work out what the expensive things are on. Look at the utilization of those so don't have half full training courses don't have half full operating theaters. Don't have Anethe assists standing around waiting for the patient to arrive because you know that's the same as an operating theatre being wasted. I don't have road repair crews sitting around waiting because that's machinery being wasted and don't even have meeting rooms that not being used. So the key is identify your expensive resources. Measure the utilization of those on improve the utilization. If that means spending amid or on the small stuff, then that's fine. But it could also mean reducing the amount of those expensive resources. But do it scientifically, that's the key. 27. The Real Cost of Bad IT: another significant time waster and therefore a waster of money is poor. I t computers have just become more and more vital to every business. There are an increasing costs they're getting more and more sophisticated on. I just think there's so much bad I t everywhere I go. I've done quite a lot of work for the National Health Service, for example, and on. It's just I mean, it would cost a lot for them to have brilliant I t. But on the other hand, the amount of time that gets wasted because of their I t systems. And I'm sure everybody who works there would agree that, you know, it was really perhaps should do something about that. So if you measure the biggest time wasters, I bet it will be one of them. And if you just sit and observe a person trying to work, have a look at whether the I t. Gives them what they want. I think it's a massive, hidden cost. You know, I've booked into hotels and the women's typing away, and she takes ages, and in the end I say you're right, she goes, Oh, it's this new system they've given us. It's hopeless, and I'm thinking, Well, you know what you're doing And maybe it gives MAWR information to management, but they don't realize how much extra time is taking at the front line, so just watch somebody work. It's a massive hidden cost. Maybe they've got the old version of Windows. Maybe they got really old laptop or no laptop, so they have to sit and write a loaded notes, and later on they type it in. Maybe they could be given an iPad, and it would just be instant, but they haven't got one. Onda quite often, people have really old phones or really bad cheap phones. For the sake of saving £10 a month on your phone contract, they have given you some rubbish company phone. So maybe you've got your company for land, your personal phone that's just so wasteful. It's a tool of the trade, so you should give people a good phone. It's bound to save £10 a month to give him a good phone. Now you're probably thinking this is meant to be cost reduction, and you're saying spend more on the phone. But a point is if the good phone makes that person more effective. You can do the job with fewer people, or you could doom or with same people. So give him a decent for then maybe your company should have an app, so it's really streamlined, and they can just scan the barcode or whatever it is. Maybe people haven't Bean trained, so they don't know how to use Excel. I remember when I first discovered pivot tables. It just blew my mind because a pivot table can instantly do stuff that you could spend hours every week. Adding up your numbers on the pivot table just does it. So first of all, have a look at pivot tables, but also on. By the way, if you don't know what they are asked one of your colleagues who knows about Excel to show you a pivot table, it'll blow your mind. But more than that is everybody trained to use excel because you might as well get the most other system you've got. So I know I t may seem expensive, but you need it. It's one of the tools of the job. On the key is really to try to put some real costs to these things. So then you could be systematic about the trade off between spending MAWR on I T and saving time. So say that you lose an hour a week due to reduced efficiency because you're I tease is not brilliant. Would it be were spending more money to get back that our a week? So it's a fairly easy calculation, isn't it? I would have thought to just think what's an hour a week costing me and what would be the cost of the i t. But and you could do that. But actually, let's look at a slightly more sophisticated way to do this. Let's have a look at this graph. Now, don't panic because this graph does look quite complicated. I'm actually going to explain it in more detail later on when we get to the cost of quality . But if we just have a quick look at this graph is the cost of I t. Okay. And if you look at it, we've got a thing called the failure cost on. We gotta think all the prevention cost and they add up to the total cost, which is U shaped. Okay, So if you look at the prevention cost. First you could see that the amount you spend all I t could be from 20,000 up through 80,860 to 50 to 500,000. So you can see you could you could be spending more on more on making sure your i t is brilliant And as you do that the quality of the ICTY is going up from one alloy up to nine and I've been calling it, you know, Skoda and BMW and Ferrari quality Just a way to think about quality. Okay, so you could be spending more and more on your I t. And why would you do that? And it's because your failure cost would reduce. So if you look at the failure cost graph, you can see when we've got really bad i t we might be wasting 500 grand a year on. Actually, when you do your calculation of ours, you mean we did it for meetings earlier on You could lose 500 grand a year because your i t is rubbish. That's just a few hours a week of wasted time. And as your i t improves the failure cost go down to 402 101 150 eventually down to 50. You're never going to get it down to zero. You're always gonna have some failure costs. So if you look at those two graphs, if you add them up to get your total cost, which is the prevention cost plus the failure cost, you can see that we get a U shaped curve. So with the really useless I T system, we've got a cost of 620,000 and it comes down to 4 80 then the lowest is 3 60 That's the 200 plus the 1 60 where the lines of crossing over pretty much on. Then it gradually goes up again 400 k and up to 5 50 k. So you can see that having really brilliant I t. Would actually cost you more because it's really expensive to make it that that fantastic. So the cheapest place to be is in the middle. The failure costs of things like a little bit of downtime or the system isn't perfect. So the first thing we learned from this is don't have rubbish. I t. Because it costs you more, but also don't try to have perfect I t. Because that's going to cost you more as well. The final ingredient on this is it might be worth. In fact, I think it is worth going from 5 to 7, because if you do that clearly that you can see that the cost does go up a little bit. And that's because although the failure costs have come down a little bit, your prevention costs have had to go up. So the overall cost has gone up slightly. But the benefits have gone up a swell, so you can provide a better service to your customers. You gotta more motivated workforce. Your quality's gone up, so if you've got better, I t. It enables a whole load of other great things to happen. And I think for the sake of that extra 40 K could be worth it. There are diminishing returns, though, so I don't think I'd go further on up from 7 to 9, so that's a way of thinking about it. At the very least, go for the minimum overall cost of your I t. Don't forget to factor in the failure costs, so you want to be at five, not at three or two, but I would suggest that actually, it's worth going up to seven. So that's a scientific approach to looking at the cost of I T. And you could draw those graphs and you could put in your own numbers. Just do some rough estimates of how much would you have to spend to make your I t that good on what would be the downtime that you're going to get still, even if your I t. Is really good, just put some actual numbers, do some calculations for how many hours per person per week, times the number of people and then you can put real numbers in. You could make a scientific decision about how much you should spend on your I T. 28. The Small Stuff: in this video. I just want to briefly put a plea in for the small stuff that gets forgotten, the stuff that gets ignored or never reaches the top of your hit list. And clearly we want to do a Pareto and identify the big Spence first. But it might be other stuff that they're still significant savings to be had. So, for example, heating and lighting they can add up to thousands of pounds a year or waste disposal. So what do you do with your spare cardboard or your packaging and your palates and stuff like that? Onda geun. You could end up spending thousands on that. Maybe will be worth getting a compactor or having some sort of recycling scheme. Perhaps there's somebody who would pay you for it, even if you could find them. So a good way to do that? It's Compare your company with other people's companies and see how much they spend on heating and lighting and waste. Andi. Then you can work out whether you're getting a good deal or not. There's also the purchasing of small, boring things like packaging or or even pencils stationary again. Compare with other people and find out. How much do you spend per head on on your stationery? There's a friend of mine who is a professional cost reduction consultant, really good guy, and he goes in. And because he's seen lots of other companies, he immediately thinks that seems like a lot that they're spending on that. He actually looks there really accounts, and he goes through his big list and he goes, You spend more on stationery per head, then my other customers. Why is that? So he knows what you should be spending on. You can do this in a way by just comparing with other businesses, but he's also a pro negotiator, so he will then do the negotiating for you and actually get in there. And either the stuff we're buying or the things like the heat, the light and the waste disposal, he'll negotiate better ways. So I think the conclusion of this part is after you've done the 80 20 just look at the 80% of stuff that only is 20% of your costs and just have a little compare and just see whether you're being foolish in any of those areas you know is your lighting system Really inefficient. Do you have old style light bulbs that are really power inefficient? Could you have lights that switch off automatically when there's nobody there and switch on again when people come into the room with That actually had up to quite a big saving in the end, so don't forget the small stuff. 29. Get Value From Marketing: the next cost area that I just want to say some things about is marketing. Don't waste money on marketing That's not effective. Somebody said to me, Don't spend it unless you can measure the effect off it But that is difficult. There was a famous advertising person way back who said 50% of my advertising spend is wasted? If only I knew which 50% it waas and it's really difficult to measure the effect of advertising. But I think it's getting easier with the Internet because nowadays you could you could look at how many clicks you've had and how many of those have converted to sales. How many people have viewed what on you could do things like split testing where if people come to your website 50% of the time, they see one thing, 50% see the other and you can work out which of those have a bit of a conversion rate and then you can change over to the good one. So I think there are ways to be scientific about your marketing and it can be quite a large spend, So I don't think marketing, which could be advertising or any other type of publicity. I don't think it should just be assumed. Oh, well, yeah, we have to spend that because do you? You know, Do you have to have that expensive exhibition stand or whatever? Does it actually pay for it for itself? Have you ever measured it? So, for example, I don't advertise it all. I've never put out adverts for myself just out cold, But I do quite a lot of marketing. I spent quite a lot of marketing. When I run training courses, I give out little books and I give a little white plastic cards with my phone number on the bottom. But like a summary of the subject on, Bennett has my number on the bottom. So its marketing really a writer blogger. I do linked in posts. I send out my monthly tip of the month on diesel. Take work. I mean, they have a cost. They're all marketing, and it's really hard to measure whether they pay back. I just have this belief that if I give out a book or a card with a training course, I met somebody and he had my negotiating card in his pocket for I think it was 10 years he'd had it there in his wallet on I met him, he said, I've happened about this card in my wallet for 10 and I thought, I've got to keep doing the cards because there's a guy with my phone number in his wallet and sooner or later, one person is going to recommend me to another customer. Perhaps they're going to get a new job and work somewhere else, and they're gonna think we should get Kristen. He did that cause here's his number. So it's really hard to measure the effect of marketing. But if you can, you should. And you never know what's going where it's going to lead. You know, my biggest customer effort. They came originally from a project management wrap that I made is still on YouTube. You can check it out the project management rap and I made that it cost £100 to make and it's led to a massive, massive customer, so you never know which bits are gonna work and which ones are not. And I think if I had said to somebody I'm thinking of making a Project mansion rap, I think they probably would have said, Well, can you prove that that's gonna pay for itself in the arteries? I can't. So sometimes it has to be an act of faith. But I think what I'm really saying is to spend £100 on a rap is not a big risk. But if you're going to spend quite a lot of marketing on something, make sure you don't waste it. You really need to test it and optimize it as much as you can. You know, do some split testing, do some trials, maybe do a small test first. So the traditional approaches to marketing her either what they called job and finish, which is it just It's going to cost us this much to do this campaign. So that's what we'll have to spend. You know, we want to reach a certain number of customers. It's going to cost X, or you could do it by percentage of turnover. Oh yeah, Companies like ours always spend 5% of their turnover on marketing. Andi, you could either do the same as last year. You know, we spent 5% last year, or you could do it by an industry standard of they always spend 5%. But the problem is that there's always gonna be waste and you'll never really know. So my feeling is question. The amount you spend on marketing don't assume that it's always did. It definitely shouldn't be something that you just cut. But test it. The more you can measure, the better, because then you can target it more effectively, the bit that's working. If you can work out which 50% works in which one doesn't. If you can do that, it's fantastic because you can save 50 over there and you could maybe spend 60 or 70 over there will pay back. And if you could measure what the payback is from it, then you can decide whether to spend more or less on your marketing. 30. A Lack of Investment Can Be Costly: when you're thinking about cross reduction. One of the questions is, Do we reduce the amount of investment in certain areas? And I think it's really dangerous to cut your investment. But of course, if you could be scientific, if you can work out whether it's worth it or not, and that's the best way, so I'd be very careful about under investing in people. For a start, You don't want to have cheap people and not train them. You're never gonna win the battle with your competitors if you do that, but also not investing properly in machinery or even buildings. I think there's a lot of hidden costs in having buildings that are not efficient. Andi. We've already talked about stock and work in progress. One of my customers, for example. They are not very good at paying their bills. They're always having cash flow problems, and so they get put on stop by some of their suppliers. So they're always short of working progress on. They quite often end up moving stuff around from one place to another because they just haven't got enough material, and that cost them an absolute fortune because they've not just put a little bit of working capital into their work in progress. There's another one of my customers who they make boats. Andi the mold for one of their most the best selling boats. It has got really worn. So when they make the boat because the mold is warn, the boat then has to be polished once they take it out of the mold and they spend about a week polishing it, and they do a lovely job. I mean, the guys are incredibly skilled, but that's just a huge amount of work because they haven't invested in a proper mold on. I asked them for a few figures of How much does it cost to do this and this? And it worked out that to replace the mold would pay back in 10 boats, And they do. I think it's some like to a week, so five weeks it would pay back to not be polishing every boat afterwards on The reason they haven't done it is they're so busy using the mold that they haven't got time to take it out and put new one in on. I'm just thinking there must be a way to run to in parallel or something. Just get that new mold in there. It's just insane. So not investing because it's a lump of money in the short term is going to pay back and not investing enough in advertising or marketing. And PR is another thing that sometimes gets neglected. Another thing that all almost always gets neglected. His customer service. Not investing enough in looking after your customers and giving them the service they lead . And even sales sometimes gets neglected in companies. One of things I like to ask a company is if you sold, say, an extra 30% could you deliver it? They always go. Yeah, we could make it. Or we could deliver the service so that I'm thinking so. Sales is really your bottleneck. So why would, you know, get some more sales people? And obviously you've gotta work out if you the cost of the people compared to whether you would get enough sales to pay for those people. But why not try just one more person and just see if you sell more? Because if sales is your bottleneck, that's the only thing you should be focusing on. So, under investment in sales is criminal, and I think it's pretty common, so make sure you've invested properly and everything and don't cut costs in areas that are going to cost you more. 31. Your Company Culture: So the companies that I've looked at quite often their biggest cost problems come from their culture. So some companies I've bean to have a very fancy head office. For example, Andi, are you wasting too much time on trying to look important or on your head office when really the operating units could do with the money? Another cultural aspect is fear of the unions or very weak HR department or useless Occupational Health Department, so that problems with the labor force and not addressed and that can be wasting a lot of money, so that might be worth doing something about. In some organisations, sickness is the norm. You know, everybody has 10 days a year. People say I haven't used up all my sickness yet. They know that if they take more than 10 days, they'll be in trouble. So they go right up to the 10. If you've only had five sickness days, what are you doing? You could have had five more days. So is sickness the norm? And that's a cultural problem that's really expensive. And then some organizations, quite often public sector, have a use it or lose it budget system, so they have to spend, Let's say 50 grand on training. So I quite often get phone calls in about February saying, Chris, it's nearly the end of our financial year. We've got five grand left in our training budget. Can we book some training in and I'm thinking more. Yes, that's great. But do you really need that training or are you just trying to use up your budget? And obviously I tried to give them great value, etcetera. But it just seems crazy to have a system where if you don't use it, you lose it. And, of course, some of them that you don't just lose it this year, but you lose it next year as well, because if you only spent 45 instead of 50 then next year they'll only give you 45 as well , so you lose it twice. So do you have a culture where you have to use up your budgets on to other cultural issues ? I think you were thinking about one is silos. Do you have gaps between departments? So each department doesn't really talk to the others because that's going to be wasting money in one way or another? You're gonna be duplicating work and not helping each other. So do you have a silo mentality in your organization? And the final one is How risk averse are you? Because if you're very cautious again, the public sector often like this because it's public money. But if you're very cautious about avoiding risk, there is a problem that goes with that, which is that you know, you don't make changes and you don't improve, and in the end it can cost you more to not take risks. I suppose there's something you can do that would bring in money. For example, our local council. We're thinking of having a music festival, and they're going to sell tickets on. They could bring in a whole load of money from doing that. But there's a tiny risk that it's not gonna work. The weather will be terrible or something, and they won't settle the tickets on. They might lose money, and therefore they didn't do it. And so risk aversion cost them money. So is your culture to risk of us? So there are some thoughts about culture, and I think, you know, culture underlies all of these improvements that you could make on it's just were thinking . Is culture getting in the way of any of the improved efficiencies that we could be making? 32. Wrap Up: So that's the end of that part of the course. We've ranged over some pretty big, tricky ideas. We've looked at things like stock purchasing, whether to use subcontractors, queue lengths, quality bottlenecks, utilization of resources, marketing onda a culture as well. So we've looked at all kinds of things there on. I'm just hoping that something in there will will trigger a thought and you'll be thinking , Yeah, absolutely. We really should do something about that. We should measure our utilization or we should improve our quality. So that's the end of that section, and what I'm going to cover next is a a summary of ALS. The things that you should measure on all the key areas that you should target. 33. Introduction: So in this final section, I'm going to give you two epic top tens are going to do the top 10 of what to measure on, then the top 10 of actions you can take in order to reduce your costs. 34. Top 10 Things to Measure: So before you can cut costs, you have to measure what your costs are on. This is a summary of the top 10 things that you need to measure number one. Do a Pareto analysis of where the money is being spent. 80% of your cost goes on the top 20% of things. So after people and materials, what else is taking your money on within materials again? What is the top 20% savings made on these top 20% will give you the biggest benefit on investigating on negotiating and shopping around on. These will be worth your time. Banning biscuits and post it's will not give you anything like such a big payback on it will only de motivate people or make them less productive. So that's the first thing to do. Secondly, productivity of people is something that you should measure. Ideally, you would work out the productivity of all of your key people. And if you could compare one against another, you could work out why some people of reducing Mawr and some people are producing less. And remember it may not be their fault. So as well as taking action in focused problem areas, you'd have a better understanding of what's going on rather than having blanket reorganizations, which tend to only make the good people leave. And remember that measuring the hours people work doesn't help much. Productivity is not at all the same as the hours worked. In fact, it's the inverse because people who work shorter hours to produce the same outcome of mawr productive. So we want to measure productivity. The third thing to measure is the percentage of time wasted. And on what? So since people are probably your biggest cost on this money that you spend only gets you there time it follows that their time is your most valuable asset. And I expect most people would say that they waste 20% of their day, maybe mawr, mostly because of systems and communication and information and equipment not being a sufficient as they could be. So if you have the facts, you could work out whether investment in equipment or management time was worthwhile. So measure time wasters Number four is to measure the hours spent on tendering and on meetings and on I t problems and managing cues and duff information, etcetera. So these categories aren't exactly waste, but they can often represent inefficiency. So if you are able to measure the actual time spent on things like writing tender documents and reviewing incoming tenders, for example, you could work out whether this was costing you more than you save or not. And similarly, if you on the participants knew the actual cost of a meeting, they might be inclined to reduce the number on the duration of some of the meetings. And managing cues is often mawr expensive than getting the extra resource needed to get rid of them. You have to progress. Chase Some of the Q jobs move people up and down the queue, apologized, awaiting customers, etcetera on tracking down duff information the system and putting it right takes a bit of time, but probably saves you time in the end. But it's never measured, so measuring wasted time is key. Number five of my top 10 is to measure the cost of key resources per hour. Andi their utilization. So the idea here is to measure the utilization of expensive pieces of equipment, machinery, forklifts, vehicles on also rooms like operating theatres, testing labs, I T training rooms, etcetera, and maybe even people, so that you could make the right decisions about whether you need to get more of them or less of them will hire them out to other people. So utilization the proportion of time spent actually being used is often not measured. And yet it's vital to know number six to measure is subcontractors. Before you know it, you have regular contractors working in your business on bacon be under the radar. Despite having a much higher cost than regular employees. They don't appear as a fixed cost or on the headcount on they might be paid for after a number of different budgets. They might be great value e g training for me, but they might need to be monitored in case they in case full time employees or overtime or cancellation of the work would be better options. The seven thing to measure is the effect of pricing on turnover. It will be great to measure this. How much more would you sell if you're cut your prices on mawr? Importantly, how much less would you sell if you increase your prices? Probably very little pretty. Make no difference to what you sell if you increase your prices on. The way to test this scientifically is to experiment with your pricing so that you can measure the effects and therefore really understand the elasticity. Viel Market number eight to measure is income generation per department. Often we focus only on the costs of departments, and then we try to reduce this. But maybe some are generating money as well, and maybe others could generate some two or or generate more than they do. Some parts of your business will always be a net cost, but at least they could be less of a cost if they generated some money as well. Would be interesting to analyze. Each department is a mini business, and remember, what gets measured gets improved. Number nine. On my list of 10 things to measure is the savings that we would make if we invested in it more or conversely, the cost we would have to pay longer term if we didn't invest. So the point is that most companies who cut costs end up losing more than they gain. Ideally, you would measure the effect of any cuts you're thinking of making rather than just cutting and walking away in fact predicting the effect and then seeing if that is indeed what happens, would be the best way to really understand what's going on. What cuts are you playing to make and how will you measure, whether you really get the benefit of them without effects on other areas of income? And finally, the 10 thing to measure is failure costs due to poor quality. A critically important thing is to measure this. So we all measure prevention costs, things like training and I T and auditing and the quality department supervision Preventative meant. We measure those. They have budgets for those. But the flip side gets forgotten. The cost of handling complaints, the cost of lost business, reworking, warranty costs, management time, sorting out problems. We forget to actually measure those. The numbers for these are always going to be approximate and hard to get hold of. But that's OK. The main thing is that you can make mawr informed decisions. If you know you're currently handling 10 complaints a week and each one costs you about 400 quid, you can then work out what it would cost to reduce the numbers and to make the change and then you can work out if it's worth it. And you could monitor if that really happens. So those are my top 10 things to measure on next. We're gonna look at the actions to take following the measurements. 35. Top 10 Actions to Take: so we've measured our costs. We've really understood what's happening in the system that is our organization. What are the top 10 actions we can take to cut our costs? So, firstly, number one measurement before you do anything else both cutting and investing. Know for sure why you're making the change and know whether it has had the desired effect. Second, do a Pareto analysis and focus on the big areas and not the biscuits. Third, engage employees in the process of cost reduction. Set up project teams involves many people, as you can at all levels, publicize the costs of everything, including time, so that everyone becomes more cost aware. And then everyone could suggest ideas for reducing waste. In other words, get people to care. Number four on my list of actions is Make sure you have a strong HR department who aren't afraid to confront problems, maybe even toe have to get rid off the people who should be got rid off actual number five . Can you cut any operations out completely? Is there anything that's not necessary? A tall like the pink slips that were sent to the fifth floor of the hospital is there anything that could be computerized is running that could be done by the customers, you know. Could they go on to your website and input all the information? Perhaps instead of you can sequential operations be done by one person instead of going to pass it across the chain of people? Can things be done by cheaper people? So can we streamline our systems? Number six on the list of actions is to do something about the cost of sickness, measure the cost of sickness and reduce it. It's often a huge cost. When you work it out on, much of it is preventable by the right management. Number seven is to get your purchasing right. This may well be the same as having a centralized purchasing department, or it may not be the same as having a centralized purchasing department. You've got to make that decision personally. I'm suspicious about purchasing departments because they often don't really understand what they're buying. But sometimes they do, and that's great. So this means the right things being bought by the right people using good negotiation skills and good processes. Number eight on my list of actions is to do a cost benefit analysis rather than just measuring costs. What do we lose if we cut something both now? Andi In the future Andi In other areas of the organization, Number nine is to measure and improve the utilization of all resources. A number 10 is to optimize quality rather than just cutting it or raising it. Aiming for 100% perfect is probably going to be too expensive for the small added benefit, while cutting corners is almost certainly a false economy. So there is an optimal point, usually at the point where the prevention costs are twice the failure costs. This is part of the Taguchi model, which I spoke about earlier, and you need to find this optimum point. So measure the failure costs that includes complaints, get the number of complaints and the time used that kind of thing. Um, measure the cost of doing work twice. Measure the cost of putting right errors from other departments, loss of business due to poor quality, then consider putting quality up and perhaps consider putting quality down. But find that optimum point is usually at about seven out of 10. But what does that really mean? If you've got the numbers, you can work it out. So those are my top 10 actions. Have a read of that list. We're going to give you a printable document that's got them all on so you can look at them , discuss them with your colleagues and decide which ones of those you're going to do. 36. Conclusion: So congratulations. You finished my cost reduction course on. I really hope that in this course there were some ideas that you can use print out the printable document so you'll have a list of all my stuff, and then you could look at it and you can think, right, which it is. Um, I gonna do and then take some of the actions on. I really hope it helps if you can reduce your costs just a little bit. That saving goes straight on the bottom line. You might double your profit because of what we've looked at. And finally, please do link into me. Just go to linked in putting Chris Craft. And Lincoln would be great to stay in touch. It means that I can send you information and you can ask me questions. So I hope that's being useful. Goodbye for now.