Expenses vs. Income – Distracts from Finding the Real Problem
When it’s all said and done any companies’ goal must be to make money. No money – no business. It’s that simple. The trick to making money is to know how the current flow of work in progress supports that goal. This departs from a more traditional approach which uses expenses vs. income. If the business, so this approach assumes, is bringing in more money than its spending, its making money. This is not necessarily true.
Using the expenses vs. income approach the most logical reaction to a loss of income is to reduce expenses. The easiest way to reduce expenses is to reduce the size of the workforce. Again, this seems logical. If there is less business due to a reduction in income, the operation no longer needs the same number of resources. Using the loss of income to trigger a reduction in resources fails to force to the surface several important questions.
Ask real questions
Reducing expenses does not identify or fix anything. A process which remains a mystery, cannot be fixed. A process which is not a mystery but cannot be changed, cannot be fixed. Before issuing “pink slips” formulate questions surrounding the problem. If the product has lost its appeal, here are some typical questions which need to be asked.
- Has the quality of the product fallen below what the market will accept?
- Are the features the product offers, fallen below what the market expects?
- Is the cost of the product competitive?
- Is time to market too long?
- If customers are unhappy, has anyone bothered to ask why?
Examine real problems
Let’s look at quality. Before drawing your QA team out on the carpet, maybe a closer examination of the QA process and tools used should be more closely examined.
What about features? Why are the right features not finding their way into the product? Does the product owner (product manager) have a clear understanding of the current market? Are they spending more time writing reports then actually engaged with customers? Are the current processes and expectations placed on the product owner allowing enough “side walk time”?
Is your time to market dragging sales into the ditch and making customers furious? If this is the case, the flow of work through the process is hanging. Discover dependent processes. If work is piling up in front of a “work station” identify and fix the reasons why. Keep in mind, you are fixing processes, not assigning blame. The gains won through improved efficiencies considerably outweigh any other factor, including the cost of production.
Create a steady unbroken flow of work from beginning to end and embrace a culture of continuous improvement (Kaizen). Focusing on improving the process and the cost of production will fall on its own. The drop in production costs through new efficiencies and reduction in inventory will lower prices. Reducing time to market through continual improvement will make customers happy.
Is your organization customer focused? If not, fix it. If money is the life blood of any business, then customers are what makes it worthwhile.
It’s the Process Stupid
Reducing resources in response to lower income may contribute to further loss of income. Skim through the previous section once again. Is there any issue mentioned that is resolved by reducing the size of your team? I can’t identify one. Ask the right questions, fix the underlying issues and the market will yield its rewards. Your organization will begin making money. Maybe it’s time to respond to loss of income differently.
Click here to view a project cost estimate model that incorporates these thoughts.
Books I used to develop these thoughts: