Managerial Finance "Little Things Do Matter"

Managerial Finance

Little Things Do Matter

     Managerial finance functions should be performed continuously. There are many things that are overlooked during the expansion or contraction of a business. It is of course best to start with the larger, more meaningful tasks, and then start paying attention to the smaller things that will bring efficiency and cost savings to the organization. Here is a case in point.

     A grocery retailer here in Honolulu has grown from a small mom and pop convenience store to a three store, one warehouse specialty retailer. Shipments arrive daily at the warehouse and then the goods are distributed to their respective stores as needed. The overall business performs well. There is more growth planned, but in the meantime, there is some fine tuning that can be done.

     Let us face it; we all overlook a lot of things. As things change, habits of old seem normal and do not appear to be a problem. This three store enterprise has always had their mail delivered to the oldest store and then picked up by the warehouse worker and taken back to the warehouse office. This makes sense since the warehouse office is where all of the billing, ordering, and accounting is performed. I am sure that you have already figured it out, but this has been a habit built into the system over many years. You would think that a simple address change to the warehouse location would have been done a long time ago. You may be wondering what this is costing the company.

     It may not seem like a lot, but the office worker does have to walk across the street to the store to get the mail. Of course, like anyone else, there will be a little chit chat and common courtesy going on as well. The conservative cost estimate on this system is as follows: One person at an estimated 10 dollars an hour taking ten minutes daily to pick up the mail. This happens six days a week since they only close two days a year. There are fifty-two weeks a year and not counting postal holidays, there are 312 days of this activity (52*6). 312 days times 10 minutes minimum per day equals out to 3,120 minutes per year. 3,120 multiplied by the time cost .17, is $530 per year (3120 x (10 / 60)). That makes it just over ten dollars a week.

     This of course was a very conservative figure. When the ten dollar an hour employee is gone to get the mail, the job they were hired to do is not getting done. This means that the cost is actually double than the conservative figure. The cost is up to twenty dollars a week now and over a thousand dollars a year. If you take into consideration that the worker will need to catch up on any missed phone calls, orders, and other things, a greater cost may be realized. If the person has to work overtime each day, the cost will be even greater than the estimate. You may even want to do a more accurate costing by figuring in exactly how much a ten dollar an hour employee costs the company. The company provides healthcare, uniforms, and free lunches to the workers.

     You may be thinking that a thousand dollars a year is way too small to worry about. You may be right to a certain extent. The problem is if there is one little thing like this that can be improved upon in an organization, there are probable many more. If each one is costing the company a thousand dollars a year, you can see where these little things can add up to some serious money. It may be time for you to look around your company and find things that need to be fine tuned. You may be able to treat yourself to a great reward.