Operating Cost Reduction Strategies to Consider During Crisis Management and Recovery

By Ross Forman

In the midst of the COVID-19 crisis, operational challenges are among the top sources of pressure for businesses. Unforeseen costs, disruptions in services and, for most organizations, significant material hits to revenue are top of mind as you navigate new issues related to maintaining facilities and business functions. For these reasons, identifying and utilizing operating costs reduction opportunities is imperative.

Now is the time to consider aspects of your operations where you can reduce expenses, as you work through crisis management and to mitigate strain on finances. With the proper resources in place, building a robust cost reduction program to focus on immediate opportunities allows you to address operational priorities.

Below is a checklist of cost reducing strategies to consider for your recovery plan.

Renegotiate Existing Leases

Prioritize leases for renegotiations based on most impacted territories: facility type (criticality, costs); remaining term; total annual cost; capitalization (invested capital by location)

Project business cases to track negotiation progress against existing occupancy cost baselines

Initiate negotiations for scenarios such as temporary and permanent rent reductions, rent holidays, deferred rents, abatements, early lease terminations, and blend and extend
Identify and eliminate space in the current portfolio that is under-used, ‘dark space’, or no longer profitable
Implement a lease audit program to reduce pass-through operating expenses
Complete a footprint optimization analysis to identify locations for consolidation and closure

Reducing Other Occupancy Costs

Negotiate reduced levels of workplace services due to change in space and facility utilization

Review contracts and consider janitorial, food service, security and other service needs

Evaluate number of vendors and vendor management program to generate economies of scale
Rebid and/or renegotiate contracts to capture savings in changed market conditions
Reduce procurement of supplies relayed to facilities and operations

Conduct quick analysis to project demand, updating vendor agreements for flexibility for fixed consumptions and passthroughs

Review construction and other capital project commitments

Develop strategy to defer and revisit terms of borrowing with lenders
Review ramifications of work stoppage to reduce cash outflow
Implement Construction Audit program

Implement aggressive MSA/Contract Audit program focusing on operational and financial compliance
Appeal property taxes for owned properties

Evaluating internal and external organizational structure

Restructure/Reduce RE/Facility organization to ensure right number of internal versus external resources (proper roles, responsibilities and capabilities)
Evaluate operating model structure for best use of resources and alignment to enterprise needs
Consider temporary Staff Augmentation as opposed to permanent hiring, allowing for agility and flexibility in organizational structure

Workplace Disruption Mitigation Strategies (Post Facto):
If COVID-19’s impact on the workplace persists for next few months, you can develop prioritized enterprise strategies to work remote or on reduced scale.

Link to go-dark strategies at facilities level
Conduct workforce criticality analysis, P/L and operations impact analysis by workforce segments, equipment and technology usage etc.

You can prepare for a smoother workforce re-integration by developing and updating protocols. Action items may include:

enhanced cleaning of workplaces
new guidance and communications related to in-premises disease vector transmission,
cleanliness and decontamination training for employees and facility staff

Taking proactive measures now will mitigate the inevitable negative impact COVID-19 is having on most businesses. Hope, wait and see is not a plan. Preparedness drives needed results.