📞 +27 82 494 4663
Head Count Doesn’t Count: Smarter Ways to Manage Costs
When it comes to managing costs, it’s easy to think that reducing headcount is the answer. Fewer people on the payroll feels like progress — but in reality, it can give a false sense of security.
The real focus should be on Total Cost to Company — not simply how many people are employed. Ask yourself: How much is your wage bill per department? You may find that two highly paid managers consume more of your budget than ten lower-level staff, while contributing less overall value.
Lessons from the Past
In the 1980s, International Computers Limited (ICL) issued a worldwide directive to cut headcount by 10%. Managers complied by dismissing the ladies who made and served tea, replacing them with machines. The problem? Those machines cost more than the staff ever had.
Similarly, IBM has been known to retrench employees, only to hire them back as consultants at a higher rate. On paper, headcount falls — but the cost to company actually rises, just hidden in different budget lines.
Why People Management Isn’t “Paint by Numbers”
You can’t manage people like a spreadsheet. Success comes from genuine engagement and creating a culture based on the three R’s: Recognition, Responsibility, and Reward. No matter how large your organisation, leadership’s influence is felt everywhere. As hostage negotiator Chris Vos puts it: “You have to be genuine.”
Want a quick exercise? Calculate the full cost to company (including salaries, office space, and incentives) of a five-hour meeting with 12 people. Then ask yourself: was the value created worth the cost? Often, the answer is revealing.
Budgeting for Better Management
The most effective approach is to give each department a set monetary budget and let the Department Head decide on staffing within that budget. This gives managers ownership and flexibility while ensuring that spending aligns with the work to be done.
| Position | Salary | Head | Cost | Head | Cost | Head | Cost |
|---|---|---|---|---|---|---|---|
| Senior Manager | 80 | 1 | 80 | 1 | 80 | 1 | 100 |
| Manager | 40 | 2 | 80 | 2 | 80 | 1 | 50 |
| Section Head | 22 | 4 | 88 | 2 | 44 | 3 | 75 |
| Supervisor | 18 | 6 | 108 | 4 | 72 | 2 | 60 |
| Operatives | 14 | 12 | 168 | 11 | 154 | 9 | 195 |
| Total | 524 | 328 | 530 | ||||
| Option | 1 | 2 | 3 |
The key is to work with your team to keep Cost to Company down while increasing Contribution to Company.
Want to Learn More?
If you’d like to go deeper into practical strategies for budgeting, resource allocation, and cost management, consider joining our budgeting course. This course is packed with real-world examples, interactive budgeting workshops, and proven methods to help you design an effective cost control course for your business or organisation.
If the people making head-count and cost-to-company calls are managers rather than accountants, that is a training gap worth closing as a group. See finance training for managers and teams, or ask John what would suit.
