Three to nine ways to save money

John Ostrowski
Management Consultant
JOMC
Vancouver, Washington
Member, APWA Leadership and Management Committee

Most government cost-cutting measures are like an armed robbery of a convenience store. Maybe nobody gets hurt or maybe the clerk and even some innocent bystanders get killed. In any case, the perpetrator only gets away with a few dollars. Typical cost-cutting and armed robbery are similar in their futility. Neither really solves any basic economic problems.

The criminal comparison most taxpayers might hope for is with a bank job. In that case the chances of anyone getting hurt are similar to the convenience store approach but the take makes it feel more worthwhile. We all like to think that we can find huge savings somewhere so that taxes will be lower and life will be good.

It's much more complicated than that so my mission here is to simplify it. I think I can show that there are only three basic ways to save money. You can either cut the cost of people, equipment or materials. If you want to get more precise there are nine ways to save money. Three approaches to saving money in each of the basic three cost centers makes a total of nine ways to save money.

Before I go into detail describing the nine ways to save money in operating budgets, I'd like to discuss how not to save money. That way is to cut service. Sometimes that's the first reaction of government officials and it should be the last. If, for example, we're faced with budget cuts in street maintenance and suggest cutting the frequency of street sweeping, we've taken the easy way out at the expense of the level of service provided to the community we serve. What we should do is hold the level of service constant and look for three to nine ways to save money providing that same level of service.

In our street sweeping example the chart can provide us with a checklist to use in looking for cost cuts before we cut service. As in the case of most public service the cost of the people who do the work is the largest cost center in which to find savings.

1. Wages can seldom be cut and usually all that can be done is to control the rate of increase. One way to cut wages is to have less expensive employees do the work. Another way is hire a contractor who uses less expensive employees. This can be one of the main advantages of privatization, which then becomes just another way to cut wages.

2. Productivity can be increased if employees are not afraid of losing their jobs. Unfortunately, the only way to save money through a productivity increase is to eliminate jobs. If immediate savings aren't needed, attrition could create the necessary job cuts. What's usually referred to as economy of scale can also increase productivity. For example, if two cities have underutilized street sweeping crews, they could agree to share resources and cut staff.

3. Methods used in the performance of the work are the responsibility of management. If street sweeping routes are inefficient, management should be taking measures to change the routes and improve production. Scheduling of the work may also be done more efficiently.

4. Fleet choices affect costs. If inefficient or short-lived street sweepers are purchased the cost can be reduced by buying equipment that has a longer, more productive life.

5. Machinery used in the performance of the work can be more costly than necessary. In our example of street sweeping this isn't a factor but in a service like grounds maintenance, the type and cost of equipment could make a difference.

6. Electronics is a broad term that covers ways in which computers can be used to automate operations. Maybe someday we'll have street sweepers that fan out throughout our cities without operators but we're not there yet. In areas such as water treatment plant operation, however, remote sensing and observation equipment has already resulted in fewer employees needed.

7. Supplies used in many jobs can be bought in bulk to save money. Be careful, however, of buying more than you need. I once described a particular purchasing officer as someone who would save us money at any cost. He wanted to buy everything in bulk even if we couldn't use half of what he purchased. The supplies used to sweep streets are incidental to the cost of the operation and probably wouldn't yield much in savings.

8. Fuel is currently a big issue and finding a lower cost fuel supplier to save money just means that your costs won't go up as fast as they might. This is something that should already be monitored, but finding a way to cut fuel costs would save money in street sweeping and many other services.

9. Power isn't a factor in the cost of providing street sweeping services but is significant in building operations, wastewater treatment, and water treatment and distribution.

So there you have it: nine ways to save money and an example service to show when each of the ways actually applies. If, after reading this, you think there are ways that I haven't covered, I'm willing to bet that your new way is something that fits neatly under one of the three main cost centers or is a variation on one of the nine cost-cutting approaches.

You've probably already noticed that big, bank job-size money doesn't get saved by buying paper clips in bulk. Since employee costs are the largest of all costs in most public service functions, the only way to reduce costs significantly is through reductions in head count. That doesn't mean you should ignore the other things, but you should focus the majority of your time and effort on the things that will save you the most money.

Once you've done this you have a checklist that you can take to your public along with your analysis of which of these cost savings are actually feasible. You don't need to hire a management consultant to do this analysis unless you have a very large organization or you have some extra money lying around that you need to spend. If the latter is your situation you must be very confused.

If you've found a way to save the money you need to save so that you can continue providing the same level of service, you're done and your citizens will thank you. If the savings just aren't there, you can show that you've done a thorough analysis and now it's time for that service level discussion. This is where your elected officials and citizens will have to decide whether to reduce services or increase revenues.

So let's recap. First, find savings through increased efficiency. Then reduce service levels if enough savings can't be found. Then increase taxes if all else fails. So there you have three steps to saving money using three to nine ways to save money.

John Ostrowski, a Top Ten recipient in 1998, can be reached at (360) 573-7594 or ostrowj@pacifier.com.