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Don’t Cut that Cost

Cost cutting, like most good things, can be taken too far.

Cost cutting and cost savings are two different things. Cost savings reduce costs. One simple example is printing on both sides of a piece of paper. Most of the time that saves money without affecting performance, efficiency, or service to your students.

Cost cutting is eliminating a cost. It is usually an idea that originates in the accounting office. It is designed to save money and often helps to balance the budget. However, it rarely increases efficiency, effectiveness, adds value to the community, benefits the students, etc. In other words, it is done primarily (solely?) for the financial benefit. While it provides an immediate benefit, its long-term effect is to reduce sustainability.

It is much better to allocate more resources to fundraising and increase income enough to balance the budget. Better still is to identify an initiative that will benefit the students, raise efficiency, create added value for your community, etc. Then ask the donors to fund the initiative. In short, work your way out of the financial challenge rather than trying to save your way out.

When cutting costs balances the budget, there is nothing left for growth. As a result, next year will be a more difficult problem to solve. Inflation will increase expenses but nothing was done this year to increase income or enable growth. Next year it will be necessary to cut costs again, sustainability declines, the mission is handicapped, and there is nothing new to attract new students, retain students, attract new donors or increase donor loyalty, engagement, and generosity.

It is rare that an organization is able to cut its way to good health. Sometimes it appears as if that happens but, if you look closely, it is usually a different strategy at work. Let us assume a parochial school has a 10% budget deficit. Cutting expense by 10% is one option. Another option is to cut expenses by 15% – 20% and use the surplus (5% or 10%) to fund an initiative that will increase donor generosity, student enrollment, community support, etc. In this case, the cost cutting will fund growth, which will allow the cost cuts to be restored. Without growth it is impossible to restore any costs that were cut.

An alternative strategy is to use some of the surplus to fund new technology or processes to increase productivity. However, there must be growth. Without growth, the increase in productivity looks good on paper but fails to create value for the students or community.

Money’s only purpose is to make your mission more valuable to your students and community. When it does, it increases your school’s sustainability. When money is used for any other purpose, it lowers sustainability.

Next Step:

Add a new initiative to every budget (growth is critical to sustainability, remaining competitive, and keeping your mission relevant)

Identify cost savings before starting to create next year’s budget

Cut costs only as a last resort and cut more than enough to produce a surplus to drive growth

Engage donors in the funding of new initiatives (never use the reserve to fund an initiative)

A new initiative each year ensures a parochial school is always growing and serving more students (remaining relevant). New initiatives provide donors with new ways to help your students. New initiatives provide new challenges for your staff. New initiatives create additional value for your community, which attracts new supporters. New initiatives help drive sustainability.

Take It Further:

Ask your board to be courageous and trust donors to fund initiatives rather than look for ways to cut costs

Create budgets that generate surpluses so you have a reserve and rarely need to cut costs

Ask you board to use the increased support your new initiatives create, rather than year-end budget numbers, to determine the success of your budgeting process

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