A Project’s Promise: the “Benefits” of Staff Reduction

Staff reduction

When companies invest in projects that are supposed to reduce the size of their workforce either due to automation or offshoring, the language used often seems somewhat devoid of empathy. Job loss impacts people on a very raw and direct way, and deserves the gravity of being thoroughly considered with the right criteria rather than buzzwords of success.

For example, project managers and accountants will refer to this type of reduction as the “benefit of FTE (full-time equivalent resource) reduction” as code for ‘we will remove staff to save on cost’.

But is it really a beneficial saving?

And if it is, are project managers accurately communicating with the accounting division to ensure this ‘benefit’ is in fact realised?

Whether or not the saving is beneficial, is highly dependent on how a company accounts for benefits. As for the accurate translation of the saving from project manager to accountant, we have seen many companies fail at accounting for benefits properly, which has led to over or understatement of project ROI. The failure can be significant if you promise your shareholders a specific cost reduction target. And many companies invest millions of dollars into projects without seeing the expected returns.

We’ve outlined 5 common pitfalls project managers should note when creating business cases:

  1. Forgetting or understating staff redundancy costs.
  2. Claiming a “benefit”, but the ‘removed’ FTE moves elsewhere in the company. Yes, it’s a cost reduction delivered by the project, but it is NOT a cost reduction to the company as a whole.
  3. The cost of intellectual property that exits. People accumulate years of knowledge that can be very expensive to recuperate. This knowledge is almost impossible to quantify, but can be incredibly costly for the business.
  4. Offshoring can be claimed to be a very lucrative cost reduction exercise, but we are now seeing companies bringing teams back onshore. This poses the challenge of whether the project’s “benefit” is short-term only, and may have significant long-term costs?
  5. The promise that automation will increase productivity. Productivity benefits are notoriously hard to quantify and even more difficult to track. Overstating the productivity ‘benefit’ that the project may deliver can become a detriment to the overall project ROI in the future.

To avoid these pitfalls, we’ve pulled together 5 common traits that we’ve seen project teams exhibit in order to successfully deliver on their promised ROI and benefits:

  1. Make sure your business case uses the most up to date and available information when claiming staff reductions.
  2. Set-up a method of tracking staff reductions and what happens to each staff member.
  3. Ensure you work with your payroll and HR teams to ensure that all cost and benefits are tracked on a staff member basis.
  4. Analyse as to whether the benefit is worth the long-term investment. Ensure that the contracts your project is signing on behalf of your company/client are accurately reflected in your analysis i.e. yearly inflation, salary increases, etc can create a scenario that diminishes the long-term ROI.
  5. Ensure succession planning and proper handover documentation in order to decrease loss of key processes and access to documentation. This will help decrease the impact of losing IP.

Please click here to register for our upcoming introductory 2-hour workshop into project accounting and benefits tracking.