Is Redundancy Necessary?
The public is lead to believe that making a worker redundant in these troubled times might be the right decision and not a knee jerk reaction to the COVID19 crisis. Hundreds of workers are laid off after the recent outbreak of the coronavirus and many are home nursing the casualties of the “necessary” but critical decision.
However, one observer questioned the rational behind the movement by some well-to-do establishments especially when some were reporting high profits and are taking money out of their gross earnings to pay hefty monthly insurance premiums for disaster contingencies.
It is suggested that before we throw in the towel, we recalibrate our thoughts and look at our overall overhead expenditures, workloads, capital budgets, and last but not least, our insurance and contingency plans or lack thereof. Here are some factors we could consider before laying off workers during a pandemic or natural disaster:
One widely used clichés is: “it is never too late for a shower of rain” and many businesses might be putting away their umbrellas during the “rainy season” and finding cost-effective ways to operate their businesses efficiently. Reducing overhead expenses and restructuring our budgets might be one way to mitigate further losses during a crisis. In fact, most times we experience losses due to over and under utilization of the company’s facilities and resources. One example of reducing expenses is to use energy-efficient appliances during the day and plan a structured and well defined workload.
Reducing or managing workloads could be smart way to reduce further losses by the business. In some establishments we have too many workers doubling up and repeating similar tasks without the need for specialization. If we have one or two expertise in a field, we could reduce the number of persons doing similar work thus reducing trials, errors and workflow disruptions.
Having more staff doesn’t necessarily improve efficiency but having more skilled knowledge of the operation improves the quality of the output. By having trained and knowledgeable staffs we minimize overtime and work hours to do the task. This productive move also affects the overall working capital of the business.
Restructure Working Capital Budgets
When we have too much money spending on unnecessary resources, we might have an overrun in our working capital budget. This important aspect of business finance provides the basic framework to get everything working coherently in your business. It stimulates cash flow and provides the materials to do the good efficiently. However, when the compensation packages for some senior managers and staff members are exorbitant, it will affect the company’s profit and loss significantly especially when there is a crisis.
This is a critical area to look at before we go to the bottom of the organizational chart to get rid of essential workers. An example of such adjustments could be a reduction in motor vehicle expenses and other remuneration packages for senior staff members and corporate executives, since there are plans to reduce working hours. In addition to adjusting working capital expenses, we could also adjust our insurance premiums for the business or review affordable insurance packages.
Review Insurance Premiums
Cutting back on expenses for probable events might not be a wise thing for the future but it is certainly a way to invest in the productivity and longevity of the business. Here is an example: if we pay insurance premiums for 100k a month in the event that the business could be delayed by a disaster, we are actually substituting those hefty figures for additional pay increases of staff members who could triple our income of that figure in the same month. This is called the opportunity cost or cost benefit factor of the business.
Though it is a wise decision to plan for eventualities, a pragmatic approach is to look at the cost benefit factor of paying high insurance premiums against increasing the amount on the payroll to employ efficient staff members. On the contrary, there it could have an adverse and devastating effect on the business if there are no insurance or disaster contingency plans for the business.
However, on a financial point of view, laying off staff might preserve the business’s long-term goals. If the country is faced with a global crisis and if that causes potential clients to lose interest, then it would be pointless to operate as usual in full capacity and therefore having less staff could save the company from closing down. Nevertheless, by implementing a proper plan to cut back on unnecessary spending, and by planning for eventualities, and allocating the right resources to departments, we might be able to retain staff members who have contributed significantly to the productivity of the organization.
When we act impulsively to situations that affect the labour force and majority, we not only disrupt the socioeconomic stability of the country but we create more devastating economic and emotional instability among the household when normality is restored. Often times the damage is irreparable. Acting impulsively by making workers redundant in an unforeseen crisis might be not the right way to operate a dynamic enterprise. On the contrary, such immediate action questions the strength and dynamism of that business.