Leke Olufade

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STRATEGY WITH LO -THIS WEDNESDAY

NIGERIA TODAY: STRATEGY IN VUCA ENVIRONMENT.

It is another Wednesday and time for strategy with Dr L.O. So far, we have discussed possible strategies to adopt to sustain the revenue profile of the organization through scenario planning to avoid over pricing and low sales. We also looked into the cost profile of typical businesses: the direct costs that impact margins of products and services. Today we are looking at overhead costs.

COST STRATEGY: OVERHEAD COSTS

Overhead costs are so-called because they remain almost constant irrespective of the level of the activities of the business. They are deductible from the margin already achieved. The usual costs here are office rental, several administrative expenses including salary and wages, vehicle running expenses other than sales or logistic vehicles, accounting fees, advertisement, insurance, interest, travel expenses, utilities etc. in summary these are costs related to the general management and administration of a business.
The strategy to adopt is the old zero-based budgeting. Here you ask yourself what is important now and not what we used to have or do. What can we eliminate without a negative impact on productivity? The usual items are overtime, vehicle expenses, rent. If the business is not doing well, we can reduce the size of offices by sharing with other sublet, reduce some executive expenses like car expenses. I will give a typical example. The small businesses are struggling to hire good and experienced Human Resources managers, Accountants etc. The strategy of shared services will be appropriate. Professionals can provide services for multiple businesses cheaper than individual employment. Generally, overhead is scalable and now is the time to align your overhead with your level of activities. You cannot afford to retain the old practices.
As usually recommended you may need the help of management experts to carry out an overhead cost audit. Spending to save is the new mantra.

TAKEAWAY

Your overhead cost is the low hanging fruit in your cost management exercise. Drive it down through technology. You can work from home, reduce power consumption, and reduce the number of administrative cars on the road. The options are really huge out there.

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