Enterprise investment management simplified: Budget efficiencies

27. September 2016Jason Daube

With a finite budget, resources, and capacity for change, your enterprise is challenged with how to effectively manage budgets. Prioritization within the enterprise portfolio is key to optimizing the right spend for the right initiatives. Using key prioritization data for the portfolio helps with determining what to focus on.

In Harvard Business Review, a leading business strategist, Michael Porter, highlights the three principles of strategy as differentiation, organizational fit, and trade-offs. Making trade-offs is paramount for prioritization and shifting spend and other resources to the top priorities. With finite budgets challenges, find key areas, or budget efficiency levers, defined at ways to to find efficiencies and reduce spend. Pulling these levers will be key to scale the enterprise. Table 1 showcases example budget efficiencies levers.

Table 1

*Lever*	Description	Benefits	Category	Potential Risk
*Reduce Unit Cost*	Find project & operational work areas to reduce spend or stop non-prioritized work	Optimizes technology spend	Cost Savings	Low. Reduce spend and making trade-offs is key
*Shift from “Operational” to “Incremental”*	Move spend & resources from operational work to the incremental projects to net new budget needs	Reduce net new spend on project work	Cost Savings	Moderate. Places support throughput at risk (substantial work done as “Operational”)
*Optimize Resources*	Lower cost for workforce resources. Achieved through sourcing, shared services, or hiring	Creates more future workforce resource flexibility	Cost Savings	Low. Risk of service drop during switchover. Hiring and retention more challenging in some regions
*Defer*	Postpone hires, projects, purchases to a later time period, to focus on higher current prioritized work	With more time comes better info about approach, ROI, etc.	Cost Avoidance	Moderate. Places current service quality and benefit at risk
*Increase Manager to Associate ratio*	Move senior level support resources into execution lead roles	Build more execution focused roles	Efficiency Gains	Moderate. New opportunities, career growth, some uncomfortable new change

There are three categories of budget efficiencies, defined in table 1:

Cost savings
Cost avoidances
Efficiency gains

Cost savings are the ways that actually reduce tangible spending. Cost avoidances are ways that postpone spending to later time-periods or avoid future potential costs. Efficiency gains are ways to leverage resources more effectively.

To optimize budgets, work on better alignment of spend to the right priorities, making the right trade-offs, and finding ways to reduce spend to allocate to strategic initiatives.