c When allocating costs, one should also consider the impact on the recipient of the

allocation. It is best to allocate only those costs over which a recipient has direct control, since
the recipient can take direct action to control the cost.

Another way to control G&A costs is to create standards for each activity performed,
which can then be used to compare against actual performance, in the same way that labor
standards have been used in the manufacturing arena for decades. To create standards for this
purpose, use the following steps:

ác 3
 


 This step is fundamental in securing the necessary overall
understanding of the problem and in picking those areas of activity that lend themselves
to standardization.
ác a 


  


 The preliminary review will reveal those routines that are
the best candidates for standard creation.
ác x    There must be a measurement base upon which to set a work
standard.
ác x   
 
 
 



 Various kinds of time and motion studies
can be applied to each work routine, depending on the nature of work.
ác j
 



 After a standard has been set, it should be tested with varying
workloads to determine whether it is a reasonable standard.
ác
 


 This step involves explaining the standard to each employee on
whom it will be used, as well as to supervisors.
ác
  


 There should be a regular schedule of reviews for each standard so
that there is not a problem with a standard becoming so out of date that it no longer
reflects the current level of efficiency of each routine.

Ô
 
  

The principle issue to remember when trying to cut costs is that one must attack the
underlying assumptions that are protecting G&A expenses, rather than trying to make
incremental adjustments to those expenses by using greater efficiencies. In many cases, the only
way to bring about massive reductions in G&A costs is to completely eliminate some categories
of costs.

Another general cost reduction concept that applies to nearly all parts of the G&A area is
the use of outsourcing. This approach questions the underlying assumption that there is a need
for an in-house staff to handle every G&A function.

The following list notes a variety of techniques that can be used to reduce costs in
specific G&A areas:
ác
  
A controller can succeed in reducing the audit expense by changing to
a different type of review. Instead of a full audit, it may be possible to have the
auditors conduct a compilation or review, both of which are less expensive.
ác º
  
 A controller can have some of the accounting or internal auditing
employees assist the external auditors during the annual audit of a company¶s
financial records. This can reduce the size of the audit fee, since the hourly rate
charged by an external auditor is typically several times the hourly rate paid to
employees.
ác 

    
 This is a rare area for a company to exercise much cost
control over, perhaps because there are so many worthy nonprofit organizations that
are in need of a company¶s cash.
ác ë   

 
 Many companies purchase all of their office equipment at
wide intervals, and obtain leases to pay for them without much thought for the terms
of those leases, which tend to be high.
ác ÿ
  
 A controller can reduce this expense by conducting a complete
review of all forms to see which ones are no longer necessary. Another option is to
combine forms, so that the functions performed by many forms can now be
completed with just a few.
ác ` 
  
 By paying close attention to accounts receivable collections and
inventory usage, a controller can have a major impact on the amount of cash being
funded through debt, which will shrink the amount of interest expense.
ác 3 



 It is quite unlikely that a controller can persuade more senior
executives to cut their pay, but it may be possible to influence the decision to alter the
components of officer salaries, so that a larger proportion of it is tied to profitability
or other similar performance-related targets.
ác Ô   
 There are several ways to reduce it. One way is to focus on the
expense of the copiers used. Another option is to standardized on a single type of
copier which allows a company to stock a limited number of service and replacement
parts for all of them, rather than a wide range of parts for a wide range of copiers.
ác a 


 A controller can reduce the amount of prime office space devoted to
record storage by reviewing the documents and consigning all but the most current
ones to cheaper off-site storage facilities.
ác j  
. To achieve a large cost reduction, a controller should first review
all existing phone invoices to determine the number and cost of extra phone services,
and then determine the need for those services.