Downsizing Costs

SIIB |

DOWNSIZING COSTS |

COSTING ASSIGNMENT |

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1/30/2011 |

DOWNSIZING COSTS

Downsizing is a commonly used euphemism which refers to reducing the overall size and operating costs of a company. It is done directly through a reduction in the total number of employees or decreasing operations. It is also called as Layoffs, Resizing, RIF (Reduction in Force).

Reasons for Downsizing:

* The primary reason is to make the daily operations of a business more efficient. E.g Assembly line Automation.

* Shutting down a unit/division because of non performance.

* Wrong Manpower Estimation-so trimming the overloaded staff /redundant staff.

* Recession/ Weak Economy

* During M&As.

Some Major Facts:

* Downsizing affects only small percentage of workforce- 1-2%. (Negativity).

* Statistics show that major staffing areas affected by downsizing are- Accounting and Production. (29% and 28% respectively).

* The Flip Side- Reducing the number of employees is an immediate and unhealthy way to pump plasma into an anemic bottom line.

* In long term it can leave company- talent hungry and risk for long term financial failure.

* Downsizing can also prove demoralizing.

* But if done correctly can tighten operations and boost up bottom line (e.g. BSNL ‘s downsizing under consideration).

Costs Involved in Downsizing:

* The expenses to retain consultants and others to provide downsizing advice.

* Cost of hiring temporary, leased or other part-time workers to fill employee gaps.

* There is also the possibility of tremendous expenditures with "charges against earnings" for early retirement and severance packages.

Downsizing Plan:

1. Determine the objectives -Restructuring, or cost reduction or increasing bottom line, M&A , weak economy etc.

2. Identifying the target group and notifying employees and meeting legal regulations.

3. Calculating costs...