Question

I have a case study and I need some ideas please. below is a summary

In a company X, the expenses in human ressources are taking 60% of the revenue, so the profit is being considerably reduced. what strategies or tactics can be implemented in order to manage better or minize this cost and increase profit. PLEASE i NEED ideas in order to keep moving with this case study. thanks

Answer 1

As per the given situation, the expenses in human resource is 60% of the revenue. So this makes the profits available to the holder to be only 40%. The best way that appears in ouder to increase the profits is to somehow reduce the human resource expense. However, let us give a look at other possible ways as well :-

1. Increase in the revenue :- One of the best ways to generate more revenue is to increase the sales of the company as that will give an edge on the volume of the company. With greater volume, there might be economies of scale which will reduce the cost of production per unit.

2. Decrease in the fixed cost :- Fixed cost is a cost which is fixed in nature. It is that type of cost which the company has to bear irrespective of whether the company is functioning or not. For example, rent, depreciation, etc. Because it is fixed in nature, the company cannot cut it down irrespective of whether the sales happens or not. So, reducing the fixed cost will help the company to earn more profits.

3. Proper Sales Mix :- It may so happen that the company is making more than one product and the margin on each such product differs. However, the company is selling that product more in which the margin is less. This will give an image that the volume is more but the profits are less. Therefore, the focus should be more on selling the product where margin is more. This will lead to the company generating more profits.

4. Optimum Debt Equity Ratio :- Normally every company has some or the other funding that it takes from the banks or the market. In lieu of this loan/debt, the company has to pay interest. If the company does not have proper debt equity then it will lead to a situation where the company is very much levered. This will lead to making the payment of interest which will get fixed in nature, thereby reducing the profits. Therefore, it is important that there is an optimum balance between the debt-equity ratio.

5. Trained Staff :- It is very much important that the staff is properly trained. Untrained staff may lead to wastage of resources thereby adding to the cost of the product. Therefore, proper training of the staff is a must so that there are no undue wastages.

6. Raw Material Purchase :- The purchase of raw material should be at an optimum rate. Any company which has a correct purchase at the correct rate can function properly. With the lower purchase of the raw material, there will be an increase in the margin, thereby, leading to an increased profits.