In today's challenging economy it is more critical than ever for credit unions to perform budget reviews and consider cost-reduction measures. In any discussion concerning cost-reduction strategies, one of the first questions is, "What is the ultimate goal?" Are the potential reductions being considered in terms of revenue enhancement goals? Is the ultimate goal to increase efficiencies? Without clearly stating the goals, reductions could be made that produce unintended effects and result in decreases in revenue or loss of efficiency. Once goals are established, it is important to look at the different avenues that might allow the credit union to achieve its goals for financial performance or cost reductions.
Among the first things to consider, staff reduction is one of the most obvious. The intent is to reduce payroll and benefits. However, this is an area that needs to be analyzed and considered carefully before reductions are made. Without a clear strategic plan, reductions in staff may actually reduce efficiency. One of the first steps a credit union must take is to analyze the organization and establish benchmarks for as many processes as can be measured. These benchmarks need to be agreed upon by management and staff.
Analyzing the credit union's processes and establishing benchmarks lays the groundwork for giving the credit union a systematic approach to reducing expenses. The benchmarking will also permit the credit union to monitor the various functions within the organization to determine if service levels are being adversely affected.
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Another approach is to perform an organizational analysis, which provides an opportunity to look at how services are delivered to members. Based on the analysis, the credit union may determine it can restructure certain job functions or combine multiple functions into one position.
A credit union might also look at the services it offers and determine if providing them within the organization, as opposed to a third party, could generate additional revenue. For example, one financial institution brought the wire transfer function in house instead of using a third party. After an initial investment in equipment and reallocation of personnel, the financial institution reduced its cost per transaction while maintaining the same fee structure. The result was an increase in margin earned per transfer.
When considering third parties, it is also important to examine your relationship with external vendors. Credit unions need to negotiate all aspects of their contracts with their vendors in order to reduce costs or, at a minimum, keep costs constant. For example, sometimes a simple extension on a given contract can be leveraged to reduce fees or maintain fees at current levels. Another option might be to offer a vendor additional work for maintaining costs at current or reduced levels. If all else fails, there is always an option to contact other vendors and have them compete for your business to ensure optimal pricing.
Converse to these thoughts, a third party might be utilized to perform tasks that free up internal staff so they can better serve members. An example might be the outsourcing of simple branch maintenance.
Purchasing is another critical category to consider when budgeting or seeking cost reductions. By creating standards for the purchase of office supplies the number and variety of items stocked can be reduced, lowering costs.
The best resource during a time of budget stress is to consult with your employees. Given the opportunity, employees will suggest many cost saving opportunities. This can best be achieved by formalizing a cost reduction program for the employees to implement.
There are many avenues that can be considered when seeking to control budgets or reduce costs. When approaching budget and cost reductions, establishing clear goals will set the credit union on the right path and will help management determine which of the many avenues should be approached to help achieve the goal.
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