By Oliver Mitchell
The old adage, 'money is power' rings true now as much as it ever did, especially in today's economy with consumer spending ailing and businesses trying to survive week to week. Imagine that, on average businesses across Ireland are spending approximately €870,327 per MINUTE on their workforce. Think about that figure for a second, it's almost €2 billion a week! It all sounds very impressive, but figures are just that...figures. They mean nothing without information. Capturing what those minutes are spent on is the real power so perhaps the saying should be that 'information is power'.
Information is Power
The costs of the workforce will probably always remain the highest overhead for almost all businesses in operation, no matter what the industry. Possessing the information, to understand and analyse where the time is being spent and on what specific duties, is a huge tool for today's accountants when every single Euro counts towards the bottom line. Even more so, when price is the main differentiation that customers use today when comparing products or services. By being even just 2% cheaper than your competition, could be the defining 'decision maker' for the customer buying from your company. Obviously, it's easy to reduce the price of a product or service by 2%, but it will nearly always directly impact on your profit margin - But what if it didn't?
Realising Efficiency and Productivity
Managing the direct cost of sales and overheads from business insurance to light & heat is all about negotiating with your suppliers and searching for the best deal available. It all tends to happen nowadays without a second thought. It's inbuilt into our way of thinking as a necessity of maintaining the slimming profit margins most businesses are battling against in today's economy. So if you have already squeezed every last percentage of a discount from your suppliers and cut every overhead, what's left to stop that 2% reduction in your price from hitting the profit margin, Ironically, the answer lies with what is probably the businesses biggest cost, the workforce. Efficiency and productivity are words that have been used over and over again in the workplace, almost to the point where they don't mean anything anymore. Yet those two words could have a massive impact on a company's survival or failure. Knowing what your workforce is spending time on will enable you to focus your energies on improving specific processes of production or the efficiency of a service, reducing the time spent on that process and therefore increasing productivity. Before I get bombarded with comments about its easier said than done and how is an accountant supposed to understand the complexities of development of software, or the production of 'widgets', I'm simply suggesting that by understanding where the highest portion of time is spent will in itself enable the business to look at itself in the most productive way. It isn't too far a stretch of the imagination to envisage an increase in productivity or efficiency of 2%.
Room for Improvement
There is nothing new about recording the time every staff member works to ensure they work the required hours per week, nor is there nothing new about recording the time they spend on specific duties during their work day. But the analysis of that data should never stop, it should be reviewed day on day, week on week and so on. Simply because everything can be improved and done faster or better. Nothing is ever perfect, and ensuring that one of the highest costs to the business is analysed and reviewed on a constant basis is one way to maintain control over the information that could and should be at your fingertips. Using that information to improve efficiency and productivity could provide the ability to reduce the selling price by 2% without hitting the profit margin, it could be the difference between success and failure. Money may very well provide power, but information provides money.
Oliver is financial controller of Softworks and a member of Chartered Accountants Ireland.