- Leandro Herrero - https://leandroherrero.com -

Make your trade off(s) transparent

In my experience, people can understand budget cuts, but there are several types of acceptance, leading to several levels of embracing and implementing.

Type one: cut across the board, indiscriminately. We need to find savings of x %. This is as frequent as it is silly. There is hardly ever a strategic reason to indiscriminately cut a fixed percentage across the board.

Type two: the savings are required. Don’t cut in an indiscriminate way. Make decisions. As long as we can deliver the target, discrimination based on logic is fine. This type gives empowerment to the budget holder and relies on the judgement of the group or division.

Type three: the budget has been reduced, targets have been allocated, we expect you to meet them. Some elements will need divestment but in other cases you may even consider to invest more. This is unusual but strictly speaking in decision-analytic terms correct. Investing more in A may indeed give you savings by avoiding having to do B. Decision Analysis professionals see this as normal but the average manager and finance controller don’t click upfront with this thinking of investing in times of cost cutting.

Type four: We are not doing X (or we are cutting x) because we need to do more of Y. This type is compatible with the others listed above. Its power is in the transparency of the trade off. Many managers would accept a cut if they knew that the money is not being ‘stolen’ from them and going to some sort of corporate vaults, but that there is a reason to divert it to somewhere else. They may not like it, but the simple explanation of a transparent trade-off makes the affair acceptable.

For everything we do, there is always something we don’t do. It should be simple to express it like this but we still prefer, for some reason, a blank ‘don’t’ and we still expect full understanding and commitment. Trade-off transparency has zero cost and very high impact.