Start with Labour when Reducing Costs

In budgeting especially, and also in cost analysis, we often review and assess costs based on Activity; – sales made, appointments seen, customers gained. Why is staffing frequently over-looked as a management lever, when it is such a big part of most businesses?
Another useful approach is to examine the workforce, by investigating:
             * Fit        * Cost        * Spend
Finding out about these areas will highlight the places to start reducing costs.
(Yes ‘cost’ and ‘spend’ are actually different here – see below)

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Labour Cost v Labour Spend

To clarify between the two in this article:
‘Cost’ – salaries, wages, and related taxes etc that are linked to what goes into your payroll system (and into the employee’s bank account etc). The stuff that still costs you money whether your staff are on holidays or not.
‘Spend’ – extras that you or your staff add to overhead costs by arriving at work each day – this can be quite comprehensive – from the costs of morning tea, to how much stationery each person is allocated etc.[/box]  

Here are the 7 key questions to get you started:



Fit is about activities and skills.

Q1. What jobs/activities does the business require?

Q2. What Skills does the job require?

Q3. Can the existing staff do the jobs needed?



Q4. Is the person being paid the right amount for the job?

Q5. Are you getting appropriate outputs/activity from each person in the job?

See How to Choose Successful KPIs for more information on this.



Spend is about “discretionary” extras related to having employees.

Q6. How much do you spend on each employee?

Q7. How much does each employee spend?

In conclusion, reviewing labour isn’t the only way of reducing costs; however it is a good place to begin because the information needed initially is usually one of the most readily available no matter what the size the organisation.
Don’t forget that you are not starting from scratch, it may take a few months to get from where you are to where you need to be – especially if you wait for staff attrition before you adjust your skill sets etc. But, undertaking this process regularly will also ensure you address “cost creep” and remain a lean and fit profitable business.

Do you have any other ways of reducing costs by examining your labour force? – Feel free to share them in the comments section below….