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Managing Through A Downturn

Dear Dave
I’m an engineer in charge of the US engineering operations of an international company based in Europe. We have two North American offices I am responsible for. Up until earlier this year, each office has always met all corporate expectations and goals. That’s now all changed. Over the past several months, with the dip in the economy, a number of major projects we have been counting on to come in have either been postponed or canceled outright. We’re losing money at an alarming rate for the first time in our history, and corporate is starting to pressure me for answers. I fully believe this situation is temporary and that by the end of the year we’ll be back to having more work than we can possibly handle. If I let go my staff, I won’t have the people I need when the work returns and I will never recover the losses already incurred. If I don’t cut back, and the situation does not correct itself, the losses will continue to deepen. My bosses in Europe are looking to me to do something, but I am not sure I know what to do. How should I respond?

Dear AJ
First and foremost, be frank and forthright with headquarters about your predicament. Don’t try to sugarcoat the magnitude of the problem in an attempt to soften the impact. I’m only guessing, but if I were your boss I’d want to feel comfortable that you understand the situation, have done some planning, and that you are making all possible attempts to turn things around.

Begin with a budget forecast. Develop a projection of the work you already have under contract between now through the time when you think the situation will turnaround. Next, create a list of the major future projects you’re banking on to materialize which makes you reluctant to reduce staff in the short term. Assign each project a likely start date along with a probability estimate that the project will actually materialize and go forward. Add the two lists together to form a revenue projection.

Compare your revenue forecast to your operating cost over the same period to see how large the deficits are likely to grow before things should turn back positive. You may wish to do a couple of scenarios of your projected budget such as a worst-case forecast along with a most likely case.

Armed with budget forecasts and your list of existing and future major projects, meet with your boss and lay it all out. Your goal for this meeting is to determine the amount of tolerance and patience corporate is willing to extend, reach an agreement and react accordingly. As part of your projections, build in a series of failsafe tripwire points spread over the life of the projection, i.e. if the situation should deteriorate to this point, we will automatically take these corrective steps. If thing still don’t improve by the time we reach the next tripwire waypoint, we will institute these additional actions on top of actions taken earlier.

In the short run, trim cost wherever you can. While not a substitute for a long-range marketing program, mount a tactical, week-to-week campaign to get in touch with as many clients and prospects you possible can who may be in a position to generate some near-term work to keep your people going. Finally, be sure to keep your boss and your staff fully informed of circumstances and developments as you go forward. Try to keep surprises to a minimum. Good Luck.

Wahby and Associates