Anyone can cut expenses stupidly, in a way that hurts more in the short run than it helps in the long run. It takes someone who truly understands the situation, who can see and understand the relative impacts on all stakeholders to cut expenses effectively.

Putting off a needed repair rarely truly saves money and generally costs you significantly more in terms of reputation and good will. Postponing an expense is NOT saving money. I have heard tales of managers telling Residents that they will have to wait for a repair “because I don’t have money for it this month.” I have seen people postpone fixing an ailing pool pump stating “it is winter so Residents won’t be in the pool.”

Often it involves digging several layers deep, asking the why question over and over and over.

– Most of the easy stuff has been done. Occasionally you run across a bill that has been paid continuously for no other reason than it was sent and it has always been paid, and no one thought to questioned it. But that is rare.

– Even if it seems irrational now, there is a reason (policy or expense or contract) that something was started. Make sure you understand WHY and that you address that why with each new policy or procedure, or that you are reasonably sure that the reason is no longer valid.

– Sometimes it is a matter of training and endless execution. The Collier Companies primarily manages student apartments. During our massive August turnover  we frequently find apartments with the air conditioner cranked down low and the doors wide open. Why? The vendor working in the apartment is not paying the bill, we are. Yes, we address it during our Vendor orientation and yes we “inspect for what we expect,” but the pursuit of excellence is never ending.

– Sometimes cost control requires the courage to experiment. Many practices (costs) build up over time and you get used to a certain level of staffing or marketing expenses. They become the “norm” and you never know if you can do with less because you’ve never truly tried.

– Many expenses exist in part because their existence benefits one part of an organization and their removal benefits another. A nice to have but not really 100% necessary staffing position vs. a higher return to investors that helps attract new capital for expansion. The manager who has the comfort of a large staff feels good but does not see the lost opportunity for growth because the overall organization is less competitive.

One way to think of it is to search for the sweet spot on cost/benefit curve. Not the lowest cost but the cost that yields the greatest benefit per dollar spent.

Which is better? A $1 dollar expense that gives $1.25 of benefit OR a $2 dollar expense that gives $3 dollars of benefit?

The first gives a 25% return, the second gives a 50% return. The first is the “cheapest” if you don’t look further but while the second costs more it is the better buy by far.

Closing quotes:

“Industry, thrift and self-control are not sought because they create wealth, but because they create character.”  — Calvin Coolidge; 1873–1933, 30th President of the U.S.

“Cannot people realize how large an income is thrift?”  — Cicero; 106 BC–43 BC, Roman philosopher, statesman, and lawyer

“Beware of little expenses; a small leak will sink a great ship.”  — Benjamin Franklin; 1706–1790, American author, printer, political theorist, politician, postmaster, scientist, musician, inventor, satirist, civic activist, statesman, and diplomat