Friday July 25, 2014
  • Overhead Value Analysis
    Blog

     

    shutterstock 145116301      Q.  My small business is breaking even, actually, we are losing a little bit of money. We’re making a good gross margin for our industry, but I think our overhead has gotten out of control. I’m sure I need to cut cost, but I’m not sure where or how much. Can you help?

          A.  It does sound like you need to reduce overhead costs. On the other hand, you are right to avoid indiscriminate cost reductions. Cutting in the wrong places could do irreparable harm to your company. Over the years, we have helped numerous small businesses reduce their overhead costs safely.

    We use a process called Overhead Value Analysis. The intent of this work is to identify savings in the company’s overhead costs. You could conceivably do this work yourself, but we have found that there significant value to having it done by an unbiased third party.

      1.      Get an overview of the operation – We meet with the owner and perhaps some of his/her key Lieutenants to get a clear picture of how the organization runs and the key responsibilities of each department. This always involves getting an organization chart (which we often have to create ourselves). The goal of this step of the process is to gain a very clear understanding of how the senior people think the organization runs (caution – the understanding of senior people, even in a small company, does not always match reality).

      2.      Identify the tasks and the time people are spending on each – We meet individually with each employee, or at least a reasonable sample of the employees, to ask how they spend their time. We have them layout exactly what tasks they do. Then we will ask how long it takes to do each task. When the estimates don’t pass the sniff test, we push back, asking penetrating questions and requesting to see work products. We want the estimates to be as accurate as possible and we want it to be difficult to sandbag. Amazingly, after we do the math, we often find that the sum of the time people spend doing their tasks is significantly less than the number of hours for which they are paid.

      3.      Determine the number of hours it should take to do each task – We have already identified the time that people said they spent doing each task. Now we need to determine how much time it should take them. We do this by cross checking the estimates from other employees that perform the same task. It may be necessary to get two individuals together to resolve any significant differences. We then meet with supervisors and senior managers to get their assessments. Ultimately, we settle on an estimate of how long it should take to complete each task.

      4.      Identify opportunities – We find opportunities to reduce overhead in three areas:

       ·         Tasks that do not need to be done – We sometimes identify tasks that are redundant or for some other reason do not need to be done. Obviously, we can eliminate such tasks and save the time required to complete them.

       ·         People who are underutilized – We now have the best estimate we can attain of how long each task should take. We do the math and determine the number of hours we need to complete the tasks of each department versus the number of hours that are available and identify areas of underutilization.

       ·         Work that could be done by a less costly resource – We often find that highly compensated people are spending significant amounts of time doing things that could be delegated to less expensive resources.

      5.      Finalize the action steps and calculate the benefit – Now the hard reality—you have identified many possible savings opportunities. However, capturing real savings requires a reduction in:

       ·         The number of employees

       ·         The average compensation per employee

       ·         Money paid to third parties

    Sometimes companies can achieve savings by not filling vacancies or by delaying hiring as the business grows. More often, the owner faces difficult, gut wrenching decisions. But, if the company is going to save money and become profitable, difficult choices must often be made.

    Overhead Value Analysis is a powerful tool for reducing waste and increasing profitability. Capturing the benefit most often requires tough decisions, but in some cases, this is the best alternative.

member_only
image
I HIGHLY recommend Polly and Doug. They have wonderful insight to help small business owners prioritize and identify strategies for growth and improvement. Wish I had met them 20 years ago!

Sharon Madere
President
Premiere Pet Products
image

Doug and Polly, I want to thank both of you! The past few months have been enlightening and overwhelming all at the same time. Your guidance, direction, wealth of knowledge, and wisdom have exceeded all my expectations. No words could ever completely describe just how amazing of a “dynamic duo” you two really are!

Dawn Beninghove, RN, CCM, CRP, PN
Chief Executive Offer
Companion Extraordinaire Nursing Network, Inc.
image
My company brought Polly in as a business consultant resource to provide Professional Skills curriculum to our early and mid-career leaders. It was company leadership that brought her in - it was her success with our associates that continued to bring her back! Using her HR and corporate leadership experience and her ability to connect with people at various levels of the organization, Polly was one of the most effective outside leadership development resources I've come across in my Talent Management years. She was extremely reliable and someone that I could trust to provide solid learning experiences that aligned with our corporate value system and talent development goals.

Scot McCarthy
Director of Workforce Development, CENTRA Health
image
My team and I have had the privilege of working with Polly on our business. Polly's keen business insight and savvy is something special. She was honest, direct, and tactful about her observations and recommendations for our team and how to grow our business. It was a pleasure having her help us and I would tell anyone that’s serious about growing their business to call Polly. She’s great!

John OReilly
Managing Partner
Base Camp Realty of Richmond, Inc.
image
Doug White took on an unfocused operation (in the financial services sector) and created an efficient, centralized system dedicated to excellence.  He did this not by driving change from the top down, but by helping the entire team see how their part of the process could be improved. Doug then mentored us toward effecting the changes ourselves. He taught us all how to bring our “A game,” and how to take ownership and pride in what we do.

Donna Levin
Vice President of Operations
care.com
image
I have known Polly for over ten years. As an HR Manager, I have utilized Polly’s training expertise at my former company and with my current company. Polly exceled at assessing the needs of our management teams and tailoring training programs that resulted in visible positive change. I also know I can count on Polly as a resource on any HR topic or bounce ideas off of her when I need a second opinion. Polly has been a mentor to me and I have always appreciated her willingness to listen and offer valuable advice and expertise.

Leigh McCullar
HR Business Solutions Manager
Sheltering Arms Physical Rehabilitation Center
image
I have had the privilege of working with Polly White for several years on a variety of projects. She consistently provides clear direction on how to resolve a wide range of employment-related issues. I look forward to my continued relationship with Polly.

Elizabeth Wilkins
Business Manager
Manorhouse Management, Inc.
* * * * * * *
image image image image image image image

Media Appearances

Doug and Polly appeared on:


television_logos

Doug and Polly published in:


Publications

Doug and Polly quoted in:


logos2

Featured Product

final_book
Own let go to GROW today! 

Voted Best Business Book of 2011 by NFIB

add