April 2011
Intermediate to advanced
384 pages
7h 21m
English
CHAPTER 25
Hidden Costs of Downsizing
As a CFO, you should never underestimate the long-term impact of downsizing staff. Whever possible, I believe the CFO should argue that it is better to fund the shortfall out of retained earnings. The cost of firing and rehiring, when added to the public relations disaster it creates, often is much higher than holding on to the staff.
By my calculations (see Exhibit 25.1), an organization with 500 full-time employees that is contemplating dismissing between 50 and 70 staff members would be no worse off if the staff members were kept on and redeployed, where possible, for up to 2.2 to 2.5 years. In reality, through clever use of new initiatives implemented by these staffers some revenue would be generated, further supporting their payroll costs and thus stretching out the downsizing time frame.
EXHIBIT 25.1 Hidden Costs of Dismissing Staff
When faced with a situation where the business is contracting, there are a number of options you need to explore:
- Can you redeploy the staff and buy some time so staff members have time to seek further employment while employed? This is a managed staff reduction process and will save a huge amount of money on redundancies while at the same time giving your staff an opportunity to find employment. This, of course, does not work in a major recession.
- Working with the human resources team, formally establish a voluntary ...
