Incentive to reduce costs?
Discussion
I'm involved with a small company of about 10 employees. They are about to employ a new manager. They are keen to cut costs, utility bills, general maintenance costs, equipment and consumables purchasing etc.
At the moment there is no incentive for staff to look for best value, they just buy for convenience or get the same firm in as they have been using for years. with no competitive quotes etc.
The directors want to incentivise the new manager to cut costs, what is the best way of doing this? They want to give a bonus % of the amount saved, is this the best way? Is here a going rate % wise? Any other options?
At the moment there is no incentive for staff to look for best value, they just buy for convenience or get the same firm in as they have been using for years. with no competitive quotes etc.
The directors want to incentivise the new manager to cut costs, what is the best way of doing this? They want to give a bonus % of the amount saved, is this the best way? Is here a going rate % wise? Any other options?
Sometimes buying for convenience is the most cost effective way. If someone spends a day hunting around for a £50 saving but has been paid £100 to do so you’re still down (Unless that saving is regular).
Increasing efficiencies is great, but IMO should only be incentivised as part of a total profit increase. A new manager needs to be focussed on the bigger picture.
Increasing efficiencies is great, but IMO should only be incentivised as part of a total profit increase. A new manager needs to be focussed on the bigger picture.
My first thought: Do not offer incentives to the new manager- offer to all employees collectively. X % savings to the business = X/10 % bonus to the staff to share.
Consider where you want to make cost savings- do you already know where big savings can be made?
If you save money, are you also going to reduce quality?
Use environmental sustainability as a driver- no single use plastics, recycled materials etc.
Edited to add- I'd also agree with Bristol Baron- sometimes, the saving isn't worth it in terms of time or effort required, or if you have a long standing relationship with a trusted supplier
Consider where you want to make cost savings- do you already know where big savings can be made?
If you save money, are you also going to reduce quality?
Use environmental sustainability as a driver- no single use plastics, recycled materials etc.
Edited to add- I'd also agree with Bristol Baron- sometimes, the saving isn't worth it in terms of time or effort required, or if you have a long standing relationship with a trusted supplier
Edited by Whitean3 on Monday 17th February 09:08
Just to clarify, this is a small members only golf club, essentially non profit making, relies on membership which needs to remain 'good value'. Approx 5 office staff and 5 ground staff. Overseen by a committee who don't have the time to check everything.
New manager being brought in to get a handle on things, get spend on plant down and get competitive quotes etc. An example, a tractor was bought, when checked they paid top price from the local supplier, good friends of the ground staff, " always looks after us". When one of us rang the suppler 'incognito' we managed to get a similar quote at 22% lower without too much haggling. Same with other purchases, open account at the local builders merchant gets abused, 1 for them and 1 for me etc. No one checks the phone and BB bills and seeks better deals, the list goes on.
The manager is well aware this is why they are being employed, just looking at ways of extra motivation.
New manager being brought in to get a handle on things, get spend on plant down and get competitive quotes etc. An example, a tractor was bought, when checked they paid top price from the local supplier, good friends of the ground staff, " always looks after us". When one of us rang the suppler 'incognito' we managed to get a similar quote at 22% lower without too much haggling. Same with other purchases, open account at the local builders merchant gets abused, 1 for them and 1 for me etc. No one checks the phone and BB bills and seeks better deals, the list goes on.
The manager is well aware this is why they are being employed, just looking at ways of extra motivation.
There's no easy way to incentivise cost saving without quite heavy controls if you're tying bonuses to it.
You need to combat hedging and sandbagging if you allow the new manager to have input into their targets - are they aiming low so that they can easily beat the target, or incentivised to not immediately achieve the best saving so that they've got some more fat to trim off later when the target is moved.
You've also got to weight the savings, somehow. No good using an outright '20% saved across the board' as a target because if there are no significant cap-ex requirements that year it would make a big dent in any case. And if they save 50% on ingredients in the clubhouse kitchen but the food is now crap, that's no good.
You need to combat hedging and sandbagging if you allow the new manager to have input into their targets - are they aiming low so that they can easily beat the target, or incentivised to not immediately achieve the best saving so that they've got some more fat to trim off later when the target is moved.
You've also got to weight the savings, somehow. No good using an outright '20% saved across the board' as a target because if there are no significant cap-ex requirements that year it would make a big dent in any case. And if they save 50% on ingredients in the clubhouse kitchen but the food is now crap, that's no good.
bristolbaron said:
Sometimes buying for convenience is the most cost effective way. If someone spends a day hunting around for a £50 saving but has been paid £100 to do so you’re still down (Unless that saving is regular).
Increasing efficiencies is great, but IMO should only be incentivised as part of a total profit increase. A new manager needs to be focussed on the bigger picture.
Yes I can agree with this, I myself buy majority of my work kit from the same wholesalers, very rarely check the invoice, occasionally check other suppliers and I do pay more for some bits but don't have the time to go elsewhere. However in the case I'm asking about the staff do have the time, it's just easy for them not to bother, it's not their money, they just want an easy life, they buy new when an item can be fixed or re-used etc. Just wasteful. Increasing efficiencies is great, but IMO should only be incentivised as part of a total profit increase. A new manager needs to be focussed on the bigger picture.
megaphone said:
Yes I can agree with this, I myself buy majority of my work kit from the same wholesalers, very rarely check the invoice, occasionally check other suppliers and I do pay more for some bits but don't have the time to go elsewhere. However in the case I'm asking about the staff do have the time, it's just easy for them not to bother, it's not their money, they just want an easy life, they buy new when an item can be fixed or re-used etc. Just wasteful.
5 office staff with spare time who are wasteful and just want an easy life.. I’ve just found your first saving! 10% of salary for each one he can manage without. megaphone said:
The manager is well aware this is why they are being employed, just looking at ways of extra motivation.
If that's the case, then surely their salary is the incentive. If you over-incentivise, then you'll just end up with the cheapest and nastiest of everything. I doubt the members will appreciate the waxed bog roll, paper bunker rakes or cold showers.
Can't it just be in the new managers JD? He's there to manage things, not make a lot of friends. 10 people isn't many and it sounds like there's awareness of the general goings on. Why can't he just start calling out the glaring issues like the tractor. It won't take too long before both the staff and the suppliers (who clearly are in on it as well) start to see things are being more tightly managed.
No need to be mean, just a bit more rigorous. Why is the tractor 20% more? Why hasn't anyone negotiated, the supplier is just milking a loose arrangement.
No need to be really hard on things, just drive a bit more discipline. Don't think the manager needs incentivising for this - its his job isn't it?
No need to be mean, just a bit more rigorous. Why is the tractor 20% more? Why hasn't anyone negotiated, the supplier is just milking a loose arrangement.
No need to be really hard on things, just drive a bit more discipline. Don't think the manager needs incentivising for this - its his job isn't it?
biggles330d said:
Can't it just be in the new managers JD? He's there to manage things, not make a lot of friends. 10 people isn't many and it sounds like there's awareness of the general goings on. Why can't he just start calling out the glaring issues like the tractor. It won't take too long before both the staff and the suppliers (who clearly are in on it as well) start to see things are being more tightly managed.
No need to be mean, just a bit more rigorous. Why is the tractor 20% more? Why hasn't anyone negotiated, the supplier is just milking a loose arrangement.
No need to be really hard on things, just drive a bit more discipline. Don't think the manager needs incentivising for this - its his job isn't it?
Depends if the manager is the one doing all the purchasing or if it is given over to the staff.No need to be mean, just a bit more rigorous. Why is the tractor 20% more? Why hasn't anyone negotiated, the supplier is just milking a loose arrangement.
No need to be really hard on things, just drive a bit more discipline. Don't think the manager needs incentivising for this - its his job isn't it?
I had to spec, source and buy my computer kit. I'm a designer, not a salesman, to i just costed it all up and bought it. I might have been able to negotiate a better deal, but that's not part of my skill set.
If the guy buying the tractor (for example) is the guy who drives it he may well not be the sort of person to try and screw a supplier (especially one he knows) on price.
Incentivising might work, or let the staff do the specing and the manager do the price negotiation.
You can't incentivise cost savings because you're effectively incentivising the manager out of a job. If they achieve all the savings they can in year one, they'll get a nice bonus. But what about year 2? No bonus so no incentive.
If you are hiring someone to save money, then that is their job; to save money and if you've got your recruiting right, you should have no need to incentivise them.
Their first task would be to save the money they are being paid in salary. So if they earn say, £30k, from the off, they have to find £30k of saving. Has anyone done an audit of overspend? If not, I would get this done because you could end up in situation where you save loads but see no benefit because you have an extra member of staff to pay.
If you are hiring someone to save money, then that is their job; to save money and if you've got your recruiting right, you should have no need to incentivise them.
Their first task would be to save the money they are being paid in salary. So if they earn say, £30k, from the off, they have to find £30k of saving. Has anyone done an audit of overspend? If not, I would get this done because you could end up in situation where you save loads but see no benefit because you have an extra member of staff to pay.
megaphone said:
Just to clarify, this is a small members only golf club, essentially non profit making, relies on membership which needs to remain 'good value'. Approx 5 office staff and 5 ground staff. Overseen by a committee who don't have the time to check everything.
I know exactly the sort of organisation you describe. I have direct experience of similar and a common thread in these situations is to throw a new person at a problem because everyone hides behind the 'no time' mantra or 'it's not us'. The truth is, profit or non, it is down to the board or committee to manage costs and simply hiring someone in is passing the buck so if it doesn't work, it wasn't the board's / committee's fault. I assume there's a treasurer and it's the treasurer who is ultimately responsible. Gassing Station | Jobs & Employment Matters | Top of Page | What's New | My Stuff