Cut Costs Strategically (Insights for Principal’s Series)

Taiichi Ohno, considered to be the father of the Toyota Production System, once said, ‘Costs do not exist to be calculated. Costs exist to be reduced.’ In an economic downturn, which we can expect over the next twelve months, even school Boards and Councils, along with Principals are forced to examine their financial position and in particular costs…..closely. In this edition of our Insights for Principals, we offer insights on how to sensibly review your cost structures. Re-evlute and re-direct expenditure by all means. Don’t just ask, ‘Where are we wasting money?’, instead ask ‘Where can we get the greatest impact from the money we do have?’

  • Increase awareness of costs across the school. Although it is important to focus on major items of cost you can still cut the cost of smaller items. You must influence people’s attitudes towards cost and wastage. Take time to scrutinise your own attitude and behaviour when it comes to cost control and waste reduction.
  • Eliminate waste rapidly. To reinforce your attitude towards costs, go for quick wins especially around operational wastage. The extent of waste in many schools can be astounding. Success in this area can, however, soon lead to success in eliminating larger costs in other areas.
  • Talk to your people to gather their ideas for cutting costs. Surprisingly few Principals and Business Managers do this. You may be surprised at the number and quality of suggestions.
  • Peel the onion. Start from the perspective of the school’s strategic priorities, followed by revenue and cashflow, systematically peeling back the layers of costs. Concentrate effort on the largest elements of cost. Obviously, these have the greatest impact on the surplus you might otherwise generate.
  • Focus on major items of expenditure. Classify costs into two categories – ‘major’ and ‘peripheral’. Too often undue focus is given to the 80% of activities accounting for 20% of costs rather than to the activities that generate most costs.
  • Go easy on the fixed costs. If not undertaken with care, cost reductions can damage a school’s reputation. Service levels offered to parents through the front office are a prime example. Make sure that any cost cutting decisions are well-informed .
  • Use a scalpel, not a bacon slicer, to cut costs. Do not ask for ‘across-the-board’ cuts from every faculty, department or section. Doing so may demonstrate equality of sacrifice but it does not solve the problem. Worst of all ‘equality of misery’ misses the opportunity of removing fat from overweight parts of the school. It could result in cuts into healthy muscle rather than just ‘the fat’.

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