In times of economic crisis, enterprises try to find ways to reduce their expenses and improve profitability to survive during tough times. However, some of the cost-saving measures they take can appear to be ineffective in the long-term perspective.
How can companies save costs and at the same become more profitable and competitive during the crisis? Let’s delve into the issue.
Saving costs during economic crisis: What to focus on?
First of all, let’s review the typical cost-cutting measures that companies implement during a crisis or economic recession. They include:
- Laying off employees,
- Reducing salaries/wages,
- Closing facilities,
- Moving to a smaller office or a less expensive area,
- Minimizing or refusing outside professional services, and more. 
However, the focus on cost-cutting is not a one-size-fits-all solution; it has a number of essential disadvantages. For example, in this case, every decision will be made from a cost-cutting perspective, which can lead to missed opportunities. Also, if a company decides to cut expenses but does nothing to increase operational efficiency, it may lead to delivering low-quality output and decreased customer satisfaction. Finally, when the focal point becomes survival, it negatively affects employees’ morale – they may lose motivation and become disengaged.
So, despite the fact that cost-cutting measures help companies save money, they are ineffective in the long run.
For example, laying off employees as one of the cost-cutting measures is quite common during an economic downturn. But its effectiveness is highly questionable – organizations that reduce the number of employees have only 11% of probability to achieve high performance after the crisis. This can be explained by low morale in such companies: their people are usually concerned about the possibility of being laid off, which affects their commitment and productivity. The other problem is that it can be difficult to hire people again when the crisis is over, so companies focusing on cutting the workforce will eventually lose their competitiveness. 
The thing is you can improve profitability and save money without taking aggressive cost-cutting measures. To achieve this, you should analyze your business processes, improve operational efficiency, and identify the causes of excessive expenses. As a result, companies will not only reduce costs but also maximize business value and stay competitive when demand returns.
Let’s now examine how improper project and resource management leads to inflated costs and prevents organizations from gaining more profit.
What causes excessive expenses in project management?
Too optimistic budget estimates
Or course, you can hardly make accurate estimates before a project kicks off – there’s too much uncertainty regarding its further implementation. Here are the other factors that make proper estimation difficult:
- Managing large and long-term projects where a great number of factors may change over time;
- The phenomenon called “estimation knife-edge” – when a project manager tries to complete a project with minimum costs and at the same time has to plan for as many contingencies as possible;
- Managing multiple projects with a shared resource pool – it can be difficult to forecast the resource demand and related costs before a project starts.
Read more: Project Cost Estimation: Overview of the Process, Main Challenges, and Recommendations
Uncontrolled scope changes
Making changes to the project scope is inevitable. But problems arise when they are accepted without analyzing their consequences. When there’s no control over changes, they extend the scope of a project, which results in rework, overload, missing due dates, and finally budget overrun.
Poor risk management
In times of instability and uncertainty, projects are vulnerable to negative risks more than ever, which highlights the need for thorough risk analysis and preparation to respond to them beforehand. Being too optimistic regarding the workflow progress can play an evil joke – unpreparedness for the negative consequences of risk-bearing situations can lead to cost overrun and even project failure.
Inefficient resource utilization
Due to poor resource planning and allocation, it may seem that there’s additional demand for employees. To meet the increased demand, companies will have to hire extra people or overload the existing employees. But both variants will be costly, especially if we look from a long-term perspective. Let us explain what we mean.
- Hiring new people is not only costly; the other problem is that the output will not be high immediately: the research  shows that a new employee can become fully productive after three to eight months of work.
Read more: Hiring Extra Employees vs. Adopting a Resource Management Solution: Сhoosing the Right Investment
- On the other hand, giving people extra work is also risky – if they’re overloaded, they will make mistakes, complete their work with delays, and eventually become bottlenecks that negatively affect other employees’ work. In this case, cost overrun won’t be long in coming.
Now let’s examine how the right resource management software can change the situation and ensure a company’s competitiveness and profitability in the long-term perspective
How a resource management solution contributes to cost saving and increasing profitability in the long run
Here’s how Epicflow, a multi-project resource management tool, helps companies optimize their costs and gain more profit in the long-term perspective.
By eliminating the causes for cost overrun
As a rule, cost overrun is a result of delays that in turn can be caused by problems in the workflow or poor management decisions. Epicflow contributes to seamless project flow in the following ways:
- It prioritizes tasks across the whole project environment taking into account the remaining time buffer and dependencies between projects. As a result, every team member knows what work he or she should focus on at the moment, there’s no bad multitasking, and the work on projects is maximum productive.
- It helps ensure that every project is staffed with required resources and bridge resource demand with available capacity.
- It helps timely detect bottlenecks before they turn into major problems, including delivery delay and cost overrun. For example, Epicflow’s Historical Load Graph helps identify unbalanced workload, which is one of the primary causes of bottlenecks, so that a project/resource manager can analyze the situation and take measures to fix it.
- It facilitates making informed management decisions. Be it resolving a bottleneck or assessing the consequences of changing requirements, Epicflow’s What-if Analysis mode allows a project/resource manager to test different scenarios, analyze their consequences for the project environment, and choose the most reasonable solution.
By making the most of available resources
Seamless work on multiple projects is impossible without wise management of their shared resources. Epicflow facilitates efficient utilization of resources’ potential in the following ways:
- It provides visibility into resource-related data: employees’ competencies, capacity, availability, performance, etc., which helps a resource manager quickly find the right person to complete a task, assess productivity, and more.
- It helps allocate resources in the most advantageous way so that every team member works on a task that corresponds to their competence level without being either overworked or idle.
- It helps detect improper workload that causes bottlenecks and significantly decreases team members’ efficiency.
- It contributes to high productivity thanks to balancing team members’ load and ensuring efficient resource allocation.
By improving operational efficiency
Improving operational efficiency is one of the necessary conditions for cost optimization and ensuring an organization’s competitiveness and profitability. Epicflow increases operational efficiency in the following ways:
- By automating processes: e.g., automatic report generation, saving templates for similar projects in the Module Library, automatic prioritization, and more;
- By reducing silos, bringing distributed teams together, and being a single source of truth for everyone in the company;
- By preventing, identifying, and resolving bottlenecks in the workflow;
- By facilitating real-time and historical data analytics.
By reducing risks and getting prepared for uncertainty
No project is immune to risks and uncertainty, so it’s better to be prepared for them beforehand to minimize their negative impact. How does Epicflow assist when dealing with risks and uncertainty?
- It helps keep track of the current state of every project in the environment along with the whole portfolio. Projects that require immediate management attention are marked with colors so that you can assess the situation at a glance.
- The above-mentioned What-if Analysis makes it possible to test different variants of responding to risks.
- Finally, Epiflow’s approach implies adding a time buffer to the end date of a project instead of adding it to each task; it will be saved for contingencies (e.g., Murphy’s strike). This will protect you from missing the due date, and unexpected events won’t ruin the workflow.
Therefore, adopting a resource management solution will facilitate the timely and successful delivery of projects thanks to the wise management of shared resources, increase a company’s operational efficiency, and provide an opportunity to intake more orders. Why is that important during a crisis?
- You can ensure a company’s competitiveness – while other companies are cutting costs and putting their initiatives on hold, you can approach customers ignored by competitors, deliver more projects successfully, and increase profitability and competitiveness.
- As a result, you can come out of recession/downturn in a much better state than your competitors who took aggressive cost-cutting measures.
To learn more about the ways Epicflow can help your organization not only survive during tough times but achieve good business results in the long run, schedule a consultation with our experts.
- Kenton, Will. (2021). Cost Cutting: Importance of Strategy, Risks Posed. Retrieved from: https://www.investopedia.com/terms/c/cost-cutting.asp#:~:text=Cost%20cutting%20measures%20may%20include,advertising%20agencies%20and%20contractors%2C%20etc.
- Gulati, Ranjay et al. (2010). Roaring Out of Recession. Retrieved from: https://hbr.org/2010/03/roaring-out-of-recession
- Boskamp, Elsie. (2023). 25+ Crucial Average Cost Per Hire Facts : All Cost of Hiring Statistics. Retrieved from: https://www.zippia.com/advice/cost-of-hiring-statistics-average-cost-per-hire/