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Know your ABC

In the face of the seemingly ever increasing costs, many of our clients unfortunately do not have the luxury of passing on their own increases in operating or material costs to their end customers. Instead, they face the challenge of providing year on year cost reductions if they hope to remain competitive in the market place.

As such they need to face the challenge of continuously finding ways to do things better and reduce costs going forward.

abc blocks

Image by hisks / stock.xchng

One way of doing this is focusing on Analysing Benefit vs Costs. This will assist you in the decision making process of how to best allocate your resources such as time, money and capacity.

How can you apply this ABC to improve your time management efficiency?

  • Step 1: Work out what your hourly rate is.
  • Step 2: Compare your hourly rate to the benefit derived from your actions during that time period.
  • Step 3: Keep in mind the probability of the benefit realizing, as it will not necessarily be a certainty in all cases.
  • Step 4: Take into account repeat benefits (you may invest teaching someone how to do one of your tasks only once, but after that they will be capable of taking that activity off your hands forever).
  • Value: Use this information to prioritize between multiple tasks. Decide whether you should be doing this activity at all or whether outsourcing or delegating this task is a more efficient option. Also decide what the maximum amount of time is to spend on an activity before it is no longer worth your while.

How can you apply this ABC to optimize costs?

  • Step 1: Ensure that you have considered all the cost elements when comparing options. Do not forget to include cost elements such as travelling time, fuel cost for travelling, bank charges and interest charges.
  • Step 2: Compare this total cost to both the direct and the indirect benefits that you will be receiving (quality, service etc.). Do you really need these benefits?
  • Step 3: Keep in mind the risk of the benefit not realizing.
  • Step 4: Take into account how long it will take before you start to realize the benefits and for how long the benefit will last. Will the benefit increase or decrease over time?
  • Value: Use this information to decide on what or whom to spend your money on and if you should be spending it all.

Whenever you allocate a resource to something, it automatically excludes certain other possibilities to which you could have allocated your resources instead. This value of the next best choice given up to pursue a certain decision is called opportunity cost. Choose carefully, but don’t take too long to decide or you could miss out on your current opportunity entirely.

Once you have chosen, commit and afterwards re-evaluate the decision by reviewing the results achieved. Was there something that you missed in your decision making process or perhaps something that you misjudged? Use this information to continuously improve your decision making for future selections.

About the author:

Su-Mari Du Bruyn is co-founder of the company Adapt To Change.   She is a qualified HR practitioner and logistics specialist and is passionate about Continuous Improvement and people development. Through Adapt To Change she assists businesses to improve their business performance and better engage their staff.

The team at Adapt To Change believe that all individuals should have a healthy, stimulating and gratifying work environment.   They are dedicated to assisting businesses to transform, optimize and empower themselves and the individuals that work within them.   For more information visit www.AdaptToChange.co.za

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SMB Authors
SMB Authors 1039 posts

This article is one of the excellent contributions from small business owners, decision makers and professionals.

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