For most of us, thankfully we are not involved directly in armed conflict, but what happens when there is one in a country. From the outside looking in, we know there will mass migration to safe areas of the world, ideally all those leaving have some form of money to ensure travel costs. After the mass migrations which will make headlines, the businesses that are left, how do they function? Louai Al Roumani, Former CFO of BBSF Bank in Syria has written a book about how to function, which can be used for contingency planning if fortunately you are not involved in armed conflict. The book is titled Lessons from a Warzone, Penguin Business, London, UK, 2020.

Chapter 7 Cut costs, but don’t slash morale

When an organization faces a crisis that is likely to last for some time, increasing strategic, operational and tactical difficulties will likely lead to some extent of financial distress. Managers are typically drawn to slashing costs – it is easy to do, it leads to an easily measurable outcome and it is a convenient route to fulfil budget profitability targets.

We operate in an environment where decisions need to fulfil the criteria of satisfying SMART targets – Specific, Measurable, Attainable, Relevant and Time-based.

Mr. Roumani suggests asks how cutting costs how it affects your staff morale and your organizational core values. His 4 principles are:

Know your cost-appetite culture – cutting costs is more of an art than a science. Each organization has a different culture when it comes to cost appetite and you need to ensure that your actions are aligned with this culture.

Never save costs by compromising on your staff’s sensory needs or they will not take the extra leap for you when you need them to in difficult times.

Understand your cost drivers – make a list of all your expenses. Categorize them into broader groups, what you are trying to determine what drives each of these expenses. The next step is divided into contractual and non-contractual obligations. This way you will know which is easier to cut.

Some of the expenses need some short term capital increase for longer term cost savings. For example automated temperature controls. No one working at night, lower temperatures, equals savings.

Motivate your good staff, lay off your bad ones – use methods such as etraining to engage your workers, If they do it, they are keepers. In reality, just about everyone knows who the bad ones are even the janitor, nobody asks them.

Keep some leeway – do not operate on the bare miniumum – the idea is to continue operating and being sustainable in the operations. In a crisis, people go for lots of reasons, which is why you do not want to operate short handed for vey long.

Linking to dividend paying stocks, as much as we would like, in investing in a company the company does well, the stock goes up and the dividend is paid and often increased. The reality is overtime stock prices often fluctuate and you will read how your company cuts costs. Do you like it?

There are more questions than answers, till the next time – to raising questions.