Tip
of the Month - March 2004
STRATEGIES
FOR REDUCING OPERATING COSTS
by Audrey Brick
Reducing and controlling operating costs has become a necessity in this financially challenging environment. The following strategies are among those available for reducing and controlling costs.
Budget, plan and monitor
A budget provides a roadmap for the financial management of the organization including controlling costs. Historical results along with the effects of current revenue and cost trends provide the basis for a budget and can help predict the future financial health of the organization. It will also provide the benchmark for reporting future financial results.
Monthly reviews of actual financial results compared to budgeted amounts will provide the information necessary to react quickly to variances to the plan. Sample budget guidelines and a worksheet are available free from the Nonprofit Financial Center Web site
www.nfconline.org.
Review purchasing procedures
Purchasing procedures should be examined for possible areas for reducing costs. During the review, a check of authorization processes should take place to ensure adherence to authorization limits. The review should also look for adequate controls on spending limits and the number of people authorized to make purchases.
Review suppliers
An analysis of the existing base of suppliers could also reveal opportunities for reducing costs by consolidating purchases for additional buying power. Consolidation of suppliers will also produce a reduction of administrative expenses due to processing fewer purchase orders, invoices and payments.
Additionally, try negotiating with current suppliers for better pricing and consider proposals from alternative suppliers to lower costs in all operating expenses areas including the “small” expenses.
Ask employees to analyze expenses
Assigning a team of employees to analyze an expense category can identify areas of expense reduction. Employees can often identify items with less expensive alternatives that will meet the needs of the organization. Sometimes, items are identified that can be eliminated entirely without affecting the organization.
Rewards for participation in the effort to reduce expenses can include financial and other incentives but recognition of their achievement should also be motivational.
Engage outside help
When internal resources aren’t adequate to perform the reviews and analysis necessary to reduce and control costs, consider hiring an independent, objective outside firm to benchmark and assess current costs. The consultant could also perform an operational audit of purchasing processes, negotiate with suppliers, and implement cost savings recommendations. There are consultants available who will perform this service on a contingency basis.
Other resources available
Additional information on reducing costs is available from other sources including the Minnesota Council of Nonprofits, the Management Assistance Program for Nonprofits, the Minnesota Nonprofits Assistance Fund, and the Wilder Foundation. These organizations offer consultative and training services and special pricing programs in specific areas. Also, their Web sites provide information related to reducing costs including budgeting, purchasing, choosing a consultant and overall financial management.
Although reducing operating costs can be a daunting and time-consuming task, reductions can be accomplished using these strategies and utilizing the many resources available to nonprofits.
Audrey Brick is Managing Partner of Cost Management Solutions. Ms. Brick’s professional services firm specializes in reducing operating expenses for nonprofit organizations and is affiliated with a national organization of cost reduction specialists. She has over 20 years of executive financial management experience in both privately and publicly held companies.
View
Past Tips of the Month
May
2004 - One
Million Minnesotans Can See Your Form
990
April
2004 - Avoid
Unexpected Cost of Directors,
Officers, and Organizational Liability
March
2004 - Strategies
for Reducing Operating Costs
February
2004 - What
Can Nonprofits Due During an Election
Cycle
January
2004 - Celebrate
Your Nonprofit
November
2003 -Get
Your Board on Board
October 2003- Take
a Walk-About for Safety
September
2003- Exit
Interviews-Learn from those who Leave
August
2003 - Participant
Waivers: The Good the Bad and the Ugly
July 2003 - Practical
Tips for Reference Checking
June 2003 - Evaluating
Your Insurance Professional
May 2003 - Supervising
Volunteers
April 2003 - Protect
Your Assets with Sound Internal
Controls
March
2003
- Teaching
Computer Users to Surf Safely
February
2003 -
Involve
Clients in Protecting Their Own Safety
January
2003- Managing
the Risk of Board Discontent
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