The Problem: As new Executive Director of the Marta City Homeless Shelter, Tom S

Question

The Problem: As new Executive Director of the Marta City Homeless Shelter, Tom Smith expected challenges, but not one like he faced after only sixty days on the job. He had just reviewed the quarterly financial statements with his regional director and the news was not good. The agency faced a certain $80,000 plus deficit placing it well below it annual $575,000 budget with only six months remaining in the fiscal year. There were no significant reserve funds to turn to offset the shortfall. The agency raised 65% of its money from special events and contributions with the rest coming from United Way. Tom knew something had to be done quickly. The call from the national office regional representative told him a decision had to be made soon. Next week the Board of Trustees would meet and he had to let the Board President know the problem and proposed solution before the meeting. He wondered out loud: Could a new event raise money quickly? Were there any major contributors to approach? Out of a staff of 15 members were any non-essential? What services could be cut back, if any?

Tom Smith’s Solution:

Tom went to the board and presented a plan to downsize the staff and freeze funding on a temporary basis for two programs. Three support service staff positions would be eliminated saving $95,000 annually. The freeze on select programs would result in an annual savings of $28,000. If all went well the agency would have a balanced budget by the time it closed its books at the end of the fiscal year. Tom knew this would not be a popular decision with staff and clients, but the alternative was worse in his view.

Challenge the solution(s) by focusing on the opposite viewpoint of the proposed solution(s). Use the Devil's Advocacy from the Thinker's Toolkit. In this situation you may wish to consider items such as:

Is this the optimal solution?

Are there key items that could go wrong by adopting this solution?

Are there individuals or groups who could undermine the solution?

Explanation / Answer

Answer: It is difficult to determine whether lowering of costs or increasin of revenueis more important for the organisation. Reducing costs increases profits but only if the sales price and number of sales units remains consatant. if cost reduction results in lowering of quality of the products, then the conpany may be compelled to reduce the selling price to maintain the current sales level. this can wipe of any potential gains and result in net loss. Another negative impact could be a fall in the market share over the period of time as company may find it difficult to maintain the sales figure due to reduction in quality.

it is possible that company may already be operating near optimum efficiency in terms of reducing costs, Hence,  Tom should also explore the options of increasing the Sales.

Further, layoff may not always be an optimal solution as their are certain direct cost attached to it like severance pay to the outgoing employee, pay overtime to the remaining employee or seek placement services for temporary help.

Layoffs can increase the labor turnover as it creates a sense of insecurity among the remaining employees and they also start looking out for a job change. it also results in decreased customer loyalty, increase emotional stress resulting in decrease in efficiency of work.

Some of the Individuals may not take this solution easily and may explore means of legal renedy against the company. Also teh employees may form a union and stop working leading to the opportunity loss for the Company. This could undermine the proposed solution.

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