Cost Reduction v Redundancy dilemma….and how we can help.

Posted on January 16, 2015 by

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DownturnAs anyone remotely connected with the Oil and Gas industry knows, we are facing some challenging times ahead. Oil price has more that halved over the last few months, and some of the best economic minds are unable to accurately predict where it may be in 12 months time, such is the uncertainty in the market just now; we’ve heard 12 month price forecasts ranging from below $40 per barrel to $80+.

A discussion we are regularly having with clients at present centres around the options available to them to reduce their operating cost base.

And many clients don’t want to lose highly valued staff resources, having spent the last few years fighting hard in a very competitive market to attract and recruit the best talent.

So, aside from redundancy, here are a couple of different options available, along with some of the main pros and cons.

  • Benefits / Pension “Holiday” or cancellation
    • Pro – Can deliver short term savings without direct impact on staff resource levels
    • Con – While it can reduce immediate cost, it doesn’t address the problem if you are genuinely over resourced with staff
  • Working Hours Reduction
    • Pro – Can allow you to retain all / more of the current workforce by spreading the reduction in resource level across the wider organisation
    • Con – while reducing overall resource level, it may not address specific resource excesses in certain areas, functions or departments, which means you can end up light of resource in critical areas while still having spare capacity in others
  • Unpaid Leave / Sabaticals / Client Secondments
    • Pro – can reduce the direct payroll cost, again without reducing head count – great solution if you think the market will improve in the not too distant future and you want to retain the team
    • Con – if the market doesn’t improve, you are likely to be just delaying the inevitable
  • Salary / Rate Reduction
    • Pro – directly reduces operating cost with no impact on resource levels
    • Con – can affect morale and there is an increased risk of losing talent if rates do not remain competitive

Finally, after all these and perhaps some other factors have been considered, you may be still be left with no alternative but to reduce headcount through redundancy or termination of contracts.

If your organisation needs any external, objective help to review or implement any of the options above, please give us a call on 01224 643465 or email Campbell Urquhart at cu@upwebsite.com for a free, confidential discussion.

If a reduction in headcount is your final option and you need some redundancy or outplacement support on a cost effective basis, click on the following link for more information on how we can help – Outplacement Services – The Urquhart Partnership