Cutting Costs in Today’s Economy

Mark Crawford
June 30, 2009 | COMMENTS

XN Financial Services is a Florida-based firm that creates specialized insurance products underwritten by Lloyd's of London. One of the tasks that CFO Bob Zobel enjoys the most is "turning over little rocks."

He admits the cost savings he discovers barely budges the cash needle, even though XN's revenue is just $80 million. "These are not big numbers," the CFO comments to CFO Magazine. "But they get bigger when you add them up."

He takes a seat-of-the-pants approach, spotting potential savings in the course of his daily doings and travels. A favorite example, which involves cell-phone charges, "started with me but became a good deal for the company," he says.

Zobel frequently visits the firm's Canadian arm in Montreal. After his first trip there, he was surprised that his Verizon bill for the month had doubled from its previous norm, because of international calling charges. He was surprised again when Verizon told him that for just a few dollars a month, his "anywhere minutes" plan could be expanded from just the United States to include Canada as well.

That got Zobel wondering how much more the company could save on phone bills. About 50 of XN's 75 employees make calls for which they are reimbursed. There is frequent travel not only to Canada, but also to Europe, where analog phones do not work. So employees without a BlackBerry or other digital device can easily ring up $100 to $150 a week in land-line charges.

Working with his IT director, Zobel reduced the number of cell-phone suppliers the company uses from three to two, signed up for country-specific plans in all of the firm's international business destinations, and bought BlackBerries for those who travel to Europe. With everyone properly equipped, the benefit should be several thousand dollars a year.

Potential cost reductions can go unnoticed even when they stare you in the face. Zobel says he's proudest of a simple switch in hotels in Montreal that saved $75 a night—which translates into a savings of about $7,500 for the 100 or so nights Zobel spends there in a year. The best part, he adds, is that XN's board thought the story about the hotel change was "fabulous." Other employees are now being encouraged to look for their own travel cost savings. "If two people are going to the same city on the same day, take the same plane and share a cab," he says.

Test Your Leanness

At ServisFirst Bank, a Birmingham, Alabama institution with $1.2 billion in assets, business-services provider Crowe & Horwath is winding up a two-month-long expense-benchmarking project. The bank's CFO, Bud Foshee, says he expects that less than $80,000 in potential savings will be identified.

He characterizes that level of savings as not terribly significant. "Anywhere money could be saved, they've looked at it and have found very few things," says Foshee. "This proves that we've done a pretty good job of controlling costs. When you grow as quickly as we have, you don't always watch your expenses. But I don't know of anything we could do right now that would save an awful lot of money."

The examination covers more than 20 categories of noninterest expense, such as maintenance, office equipment, IT processing, printing, stationery, and check expense. Crowe & Horwath will receive a percentage of identified savings, to be paid out over three years.

Foshee says that rather than being motivated by the recession, the project was prompted by a cost-control orientation the bank has had since it opened in 2005. A big part of that effort has been a preference for outsourcing whatever is possible, including internal audit, compliance, and managing the bank's core processing system. "We avoid investing in the people and equipment for those things, and it's worked out really well," he says.

Other Kinds of Cutting

Some types of expense savings — aside from well-known ones such as layoffs, hiring freezes, and benefits reductions — are emerging as trends among smaller companies, according to Angela Roberts, area practice director for Ajilon Finance Solutions.

Videoconferencing is becoming an increasing popular alternative to physical travel for such purposes as board meetings and business pitches. Installing videoconferencing equipment brings not only immediate savings but also expense reductions that will last, Roberts points out. "Whenever you use it, you'll be saving not only on travel costs but on time away from the office," she says.

An even lower-cost alternative to travel — in fact, a free one — is the use of Internet communication vehicles such as Skype. Roberts says that she and some of her clients are using freeconferencecall.com for audio interaction without the need to install camera equipment. For their part, Skype users can see one another by using cameras mounted on their computers.

This is a summary of an article published by David McCann on www.cfo.com entitled “A Cornucopia of Costs.” See the complete article online here.