In modern management, a wide range of processes and functions fall under the umbrella of effective governance. However, during periods of economic downturn, new priorities emerge that force leaders to rethink how they operate:
- The need for a comprehensive business assessment and evaluation of enterprise viability (risk management)
- Feasibility analysis of business operations, including improving capitalization and liquidity
- Demand for well-documented justifications (through comparative analysis) in decision-making around resource acquisition, use, and allocation
- Targeted change management and cost optimization mechanisms to retain market share and drive strategic growth
Managers working under economic stress must incorporate approaches drawn from crisis management, strategic management, project management, and risk management simultaneously. Here are 14 key ways to optimize project costs:
1. Start Optimization with Yourself
Business owners should begin any optimization efforts by leading through example — aligning their company’s reputation with their personal integrity.
Employees and contractors can be held financially accountable for mistakes (penalties, fines, damages), but owners bear full responsibility for their business decisions.
Useful tools to track and minimize management-related cost errors include:
- Penalty estimation methods — to calculate the real cost of mistakes
- Extensive resource reserve models (ER) — where ER reflects the inevitable losses due to poor leadership, adjusted by resource efficiency
2. Pay Close Attention to Business Processes During Turbulence
Owners typically solve problems faster than hired managers. Two business owners will often find common ground faster than an owner and a hired executive.
That’s why entrepreneurs often want to “talk to the boss” — especially when:
- Launching new business ventures
- Executing strategic projects
- Solving urgent or high-impact problems
- Navigating crises or adverse conditions
- Negotiating with key clients and partners
3. Manage End-to-End Business Processes
There are eight core end-to-end processes every company should monitor:
- Customer relationship management
- Customer service delivery
- Demand management
- Order fulfillment
- Material flow management
- Procurement
- Product development and value creation
- Reverse logistics (returns and recycling)
Unlike traditional budgeting, crisis-oriented management demands oversight of these full-cycle processes. This approach allows leaders to track dynamic shifts in key metrics and respond with real-time optimization — keeping a constant pulse on performance.
4. Be Realistic About Operations and People
In Russia, business decisions are often influenced by personal likes and dislikes. As one executive said: “If there’s someone pleasant to work with at the company, I’m willing to do business. If not — I’m not.”
This logic breaks down under pressure. Crisis situations demand objectivity, professionalism, and a focus on company interests, not personal preferences.
5. Diagnose Before You Act
Quick reactions are not always the right ones. Leaders who try to “fight on all fronts” often waste energy and delay critical decisions while rushing less important ones.
To truly optimize, start by analyzing how well current operations align with proven disciplines, such as:
- Business performance analysis
- Marketing research
- Working capital management (especially inventory)
6. Manage Not Just Cash Flow, But Working Capital
Mismanagement of working capital is a common cause of internal crises in Russian companies.
Effective working capital management enables a business to transition from its current state to a desired future state. Key metrics include:
- Volume of current and own assets
- Working capital structure
- Inventory turnover rates
- Financial cycle duration
- Return on capital (pre-tax)
7. Maximize Resource Efficiency
There is a clear correlation between working capital levels and profit. Smart managers track profitability vs. capital usage to make timely investment decisions.
Ways to eliminate inefficiency:
- Assess extensive resource losses or overuse
- Analyze logistical value (cost of storing and maintaining excess stock)
- Structure and optimize inventory
- Use slow-moving items as loss leaders to attract customers
- Focus on core business, outsource non-core functions
8. Keep It Simple: Use Business Units
Organize your business into autonomous business units, each responsible for specific operations. These units should:
- Launch and control processes
- Be financially accountable
- Be benchmarked against outsourced alternatives
If an internal unit costs more than outsourcing, it’s likely a weak link.
9. Know Your Profitability and Monitor Trends
Set profitability targets based on what your investors expect. This depends on:
- Market conditions
- Competing investment options
- Company-specific risk
Use profitability metrics like:
- Return on current assets
- Return on equity
- Overall pre-tax profitability
Track trends continuously.
10. Control Price Structure
Inaccurate pricing strategies during downturns can paralyze your business. Pricing is a cornerstone of management, but well-founded pricing remains rare in many Russian firms.
11. Master the Value Chain and Supply Chain
In many Russian businesses, nobody formally manages the supply chain — or it’s handled directly by the owner.
Understanding all steps of your value chain allows for:
- More accurate cost planning
- Revenue growth
- Market share gains
12. Know Your Clients and Partners
Sales teams must understand both the basics and nuances of client communication.
Large companies rely on customer profiles for segmentation. Mid-sized companies often filter clients based on sales reps’ personal bias — which can harm revenue.
Not knowing your customers during uncertain times is like fishing blindfolded during a storm.
13. Cut Out the Kickbacks
Owners can reduce costs (by 5–15%, sometimes up to 30%) by negotiating directly with decision-makers from service providers — eliminating hidden commissions and agency fees.
14. Explore Integration Opportunities
Remember partners who offered simple solutions, saw your success as part of theirs, and vice versa.
These systemic allies should be consulted about risks, opportunities, and collaborative strategies. This keeps you resilient, minimizes external pressure, and turns aligned interests into profit engines.
