From the June 2008 issue of Treasury & Risk magazine

What to Cut in a Downturn

Cuts to general and administrative (G&A) spending can offset as much as 45% of the anticipated decline in pre-tax profits during a recession while causing the least amount of long-term harm, for an average Fortune 1000 company, according to a new study by the Hackett Group, an advisory firm. Cash disbursement operations provide the greatest savings potential at the lowest risk, while cuts to procurement, IT, finance, accounting and human resources provide even greater savings, but are riskier and more complex. "Companies need to automate, trim budget items, close their books more quickly and consolidate operations," says Brian Hall, practice leader for Hackett's executive advisory program. Hackett recommends that companies optimize their G&A costs by emulating world-class Fortune 1000 companies, which "demonstrate a smart use of technology and a standardized, simplified G&A environment," says Hall, noting that the finance costs of world-class companies have dropped every year for the last 15 years, while those costs have been flat for a typical Fortune 1000 company since the Sarbanes-Oxley Act of 2002 was enacted.

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