Expense Management in the New Normal

More About | Forensics | COVID-19

As this article is being written, there is a sense of cautious optimism that the latest and largest stimulus package will lessen the economic impact felt by many sectors of our economy. While there is reason for optimism, large parts of our economy are still closed, and the greatest impacts of the COVID-19 pandemic may be yet to come. Organizations looking to the new normal must be prepared to leave behind their playbooks from past recessions and embrace new strategies to seize the opportunities.

Despite record new unemployment claims, there are many businesses trying to avoid labor cuts, which is in part out of civic responsibility, pride and pragmatism. A few short weeks ago, there were labor shortages in many sectors of the economy. If the economy picks up quickly, as some predict, these employees will be needed. Finally, public policy and programs such as the Paycheck Protection Program (PPP) are providing incentives for employers to maintain their payrolls. We are only weeks into the economic crisis, and despite stimulus and Federal Reserve policy, we may have more setbacks before we return to the economic levels we experienced just a few months ago. Organizations will face tough choices regarding their expenses, and given businesses’ reluctance to cut payroll, cost savings may need to come from other areas of the business. But where? What will be different this time?

Organizations should start by reaping the benefit of the disruption they have already endured. Significant investments have been made so that working from home has become a full-time reality for many. Now is the time to look hard at shrinking your footprint and reducing facility costs. But don’t stop there – the world has been moving to a paperless environment even before COVID-19 induced work from home edicts. The last group of employees who resisted paperless office initiatives have learned to work virtually in a largely paperless environment. You can likely reduce investments in copiers, printers and paper.

Of course, each organization needs to consider its unique cost structure and identify any opportunities to cut costs while minimizing the impact to productivity. Here are a few areas for you to consider:

  • Cost Structure – Understanding your cost structure is key to quickly identifying the areas where spending can be reduced. Are you paying too much for goods and services? Worse yet, are you purchasing goods and services you do not need? As previously mentioned, facility costs are one area you can consider for savings. What other unnecessary spending can you cut without impacting productivity?
  • Procurement Organization – Are you getting the most from your procurement organization? A high performing procurement organization is key to increasing the value received for its cost. In addition to making sure you are receiving competitive pricing, strong procurement organizations also mitigate risk through strong third-party risk management. Vetting potential vendors and proper vendor on-boarding can mitigate fraud risk.
  • Required Investments – Thriving in the new normal will require investment today. Be thoughtful and thorough before making potential reductions in spending for areas such as sales and marketing, research and development and other areas that will fuel growth in the future.

Expense management is not necessarily enjoyable, but it is the reality for most organizations today. Being thoughtful and intentional now will make the process less painful and position you for growth in the new normal.