Many time changes are necessary in our financial life. Often times, big changes are necessary. If you realize you're in over your head with debt, or way behind on your retirement savings, or anything like that, change is likely in order.
Change is fine and can lead to good things, but you have to understand the true impact of your change.
Real World Example: Across The Board Cuts
My current employer is going through some actions that are designed to reduce costs. I work in the health care industry, and the recent changes due to the Affordable Care Act seem to indicate that revenue will be flat or even shrink as some of the changes kick in. While more people will be insured, the payouts on some standard care will go down. This will affect the bottom line, so the changes that our organization is going through is pretty standard for just about every health care provider out there.
Our Chief Operating Officer has willingly shared a story of a similar attempt made, about fifteen years ago, that nearly put the organization out of business. At the time, there were revenue pressures from other sources (again, government based, are we sensing a pattern?), so it became apparent that costs needed to be cut. At that time, the organization basically did a sweeping, across the board cut. Positions were cut, pay was cut, expense budgets were cut, all to a pretty neat 10 percent (or something like that) amount.
It was pretty cut and dry, and while the goal of cutting expenses was met with precision, the secondary effects quickly became apparent. Across the board cuts meant that every area was affected, including growth areas, so growth pretty much stopped. Cutting positions in every department meant that some departments that were already strapped were now unable to work. Across the board expense cuts meant that decisions were made which started impacting quality of care, increasing wait times, and overall led to plummeting customer satisfaction ratings. Across the board pay cuts meant that the top performers with high demand, simply left.
In short, the expenses were cut, but the after effects meant that revenues started falling, wiping out the positive effects and nearly shutting down the organization.
Luckily, they were able to reverse some of the damage before it was too late. They restored credibility, quality, and were able to strategically focus their efforts to deliver high care, maximize revenue, and provide for years of financial stability.
Fortunately, they were able to learn their lesson on how to plan for future cost savings measures. Now, they are being more strategic. They are making efforts to ensure that cost cutting does not impact customer care, satisfaction, and quality. In some cases, they understand that upgraded technology or equipment will cost money, but can pay for itself and then some through reduced expenses. All in all, they are working to make cuts so that the organization comes out stronger, not weaker.
The same concept goes if you are making big changes in your life.
Make sure that your change will pay off in the long run. The last thing you want is for a change to ultimately cost you in the end.
Things To Watch Out For When Making Changes
- Tradeoff Costs – In the example above, the savings were wiped out with the tradeoffs that crippled the organization. Make sure your financial changes don't cost you in the long run.
- Opportunity Costs – You might decide to dedicate every extra penny toward paying down debt, and while that might be a great strategy, it should not be done in a vacuum. Extra money you send toward debt means money you're not investing in the market, for example. Understanding the various opportunities you are giving up will help make a good choice.
- Quality of Life – Just like quality of patient care suffered in my example above, make sure that your changes don't cripple your quality of life. Cutting all entertainment and dining out spending might be a great win on paper, but if you're sitting at home doing nothing week in and week out, you'll question your plan, and you may end up abandoning it altogether. Target your choices to retain quality.
Steps To Manage Change Effectively
- Alignment – You need to line up your change strategy with the overall vision you have for your life. Make sure what you're doing fits into the bigger picture, including your long term goals and objectives. If your changes will help in the short term, but does not align with your long term goal, you might need some additional time spent strategizing
- One step at a time – Make sure you are not making sweeping changes that will upheave your life. We are creatures of habit, and too much change all at once might cause you go give up and go back to the old way. Slow, steady implementation of major goals may mean that it takes longer to get there, but it also means you'll have greater chances of success versus a big bang approach.
- Ask for help -If you are making a big life change, chances are there is someone out there that's already gone through it. Seek out help. If it's not someone you know, then look for professional help. If you've got big debt to pay off, it might make sense to seek the help of a financial adviser to develop a plan. This investment can pay off quickly.
- Quantify your goals – Big changes need a reachable goal. Whatever your big change is, the target should be clearly defined, as well as where you are today. If you can't do that, your goals are too abstract. How can you get to where you want to be if you can't definitively say where that is.
- Track your progress – Once you have your current state and your end goals defined, this will allow you to track progress. Big changes take time and work to succeed. That's what makes them big. By tracking progress, you will know how you're doing. Wouldn't it be nice to know that you're spinning your wheels fairly early on versus taking a lot of time before you realize change is in order. Speaking of….
- Don't be afraid to make changes along the way – As I've said, big changes will take time. Along the way, you might realize that tweaks are necessary. Different priorities might come up. Different opportunities may present themselves. Unexpected things will happen, so make sure that as you identify your goals and track your progress, that you are also making sure that you're still headed down the right path. If changes are necessary that will help you get there faster or in step with other goals, then by all means, take the time to look at whether a change is in order.
Change can be daunting. Change can be scary. But, if done right, it can lead to great things and big successes in whatever area you are trying to change.