It's hard to plan in the uncertainty that we have in congress today. At least, that's the common sentiment I keep hearing. The uncertainty, of course, is on things like whether or not the Bush tax cuts will be extended. Such was the uncertainty a year ago as well.
When people talk of financial planning, it is generally thought to refer to long-term plans, based on the benefits of certain types of investments and the related risks and rewards. In so doing, planners consider uncertainties over a period of decades. Currently, financial planning must deal with short-term uncertainty as well. In this uncertainty, waiting is one of the options that has been taken by many investors. While that is a valid choice, it may not be the only choice, or the only factor to consider. In this uncertainty, decisions can be made based on the things that are certain.
Many people will want to avoid as much uncertainty as possible, such as the future of capital gain rates. In that case, planning can weigh the benefits and losses on mostly certain events or conditions. For example, although there is pending legislation related to small business investments, the current laws still do provide many tax incentives that favor investing in small business, and the mood in Washington is to continue that motivation. Based on that, risks and rewards can be estimated.
If it is necessary to gamble on the uncertianties, gamble based on a set of probabilities. One of the techniques that some managers use is to chart the possible actions and then decide based on the relative risks and rewards. In so doing, individuals can select a path based on their investment personality. Maximin, Maximax, Laplace, and Minimax Regret are the terms I learn in school, but it might be easier to relate to pessimistic, optimistic, realist, and unregrettable frames of mind. In evaluating the choices, estimate the benefits and losses related to each using a chart and compare them.
If the client is optimistic, then the alternative with the best possible results would obviously be chosen. If the client is pessimistic, then the alternative with the best of the worst possible results. A realist would then select the alternative with the best average payoff (averaging the risk and reward) of any other. Finally, a clients might step up from pure pessimism to choose the alternative that has the least of the worst regrets. Although the mathematical model can be complicated to analyze and explain, it should be easy to identify the personality of the client and the risks are rewards can be easier to accept if they are calculated based on that knowledge.
]]>Over the years management consultants have been used in employee reductions. That has been the main selling point by many. That has also been the failure of most management consultants and the death of their clients.
A RIF or Reductions in Force plan is only one tool of management consultants although it has been the most used and the most abused. It has been used to generate quick cash flow for both the client and the consultant. This type of downsizing is addicting and is rarely a one-time event. In general I don't believe planned reductions in force will alone put a company on good footing. In many corporations gradual and continuous downsizing is just one way to go out of business.
Another abused management tool is outsourcing. Outsourcing is an American idea that it is easier and cheaper to just buy what we need. It is true that you can't always save money by bringing an operation in-house. However the concept that a company can significantly lower costs by sending part of its work out suggests that there are some inefficiencies in the company's organization and those savings may not be within the operation that is being outsourced. Additionally the company may not be considering the effects that decision has on the company as a whole. This is also a tactic that soon becomes habit-forming.
In some cases the two are often used together to drop employees from the payroll and then having them hired back via a new outsource company often with reduced pay or benefits. That has been the M.O. at UTHSCT for the last 4-6 years. In such cases the outsourcing company may not even be a major provider of the service. This maneuver is characteristic of a dishonest and manipulative company or organization.
The mire of a mismanaged (or unmanaged) company is made up of several layers of bad decisions and incapable managers. The efforts to improve systems quickly with such things as RIFs and outsourcing often make bad situations worse. The consultants may carefully craft goals that are vague and generalized not unlike your daily horoscope when all they are actually doing is improving cash flow and reducing the size of the operation. I suspect the consultant may just be the scape-goat for administrative decisions already made.
By collaborating with such companies management consultants have given the profession a bad image both with employment and with companies that are truly in need of a competent consultant.