Finance for non-financial managers in the canton of Vaud: does lower activity really reduce costs?

The canton of Vaud brings together EPFL and UNIL, medtech, international sport, food-industry headquarters on the Riviera and a dense network of SMEs, alongside Lake Geneva scale-ups and established organisations undergoing change. For a non-financial manager, the useful question is precise: which expenses will actually fall if expected activity declines, and by when?

What the literature establishes

Mark C. Anderson, Rajiv D. Banker and Surya N. Janakiraman (2003, Journal of Accounting Research) observe that selling, general and administrative costs respond asymmetrically to changes in revenue: they decrease less when sales fall than they increase when sales rise. This relative stickiness is consistent with retaining resources that are costly to adjust or that managers wish to preserve. For a non-financial manager, this means that individual expense categories cannot automatically be treated as a constant proportion of sales.

The mechanism that weakens the forecast

Daniel Kahneman and Dan Lovallo (1993, Management Science) analyse how forecasts focused on a project's distinctive features can overlook experience from comparable situations and become excessively optimistic. Applied to projected savings, this mechanism calls for a distinction between a managerial intention and an adjustment that can actually be implemented. Announcing lower spending is no substitute for checking a contractual notice period or identifying which resources can genuinely be released.

The premature conclusion

One might conclude that a well-managed organisation should make all its costs immediately variable. That would confuse flexibility with decision quality: retaining scarce expertise, laboratory capacity or critical infrastructure may be justified. In a hypothetical Lausanne medtech company emerging from a university environment, keeping a specialist team during a slowdown could preserve the ability to restart, without constituting a saving. (our executive and employee training programmes)

The limits of the evidence and conventional reports

The cost-stickiness study examines aggregated company data, not an experiment in the canton of Vaud; it cannot classify every local expense on the basis of its accounting label alone. The analysis of forecasting provides an explanatory framework, not an estimate of the savings achievable in a particular organisation. In a Lake Geneva scale-up or an international sports organisation in Lausanne — both hypothetical situations — a report that merely separates fixed and variable costs remains insufficient if it omits contractual deadlines and operational consequences.

A practical check in Lausanne

One application of SHR's “Finance for non-financial managers” programme in Lausanne is to revisit an actual lower-activity scenario and document the expense concerned, the required action, its owner and its effective date for each projected saving. The measure is the share of total savings projected by a given date that is supported by an identified action and verifiable evidence, such as a termination clause or an order that can actually be cancelled. At that date, comparing those savings with actual comparable expenditure, while separating out transition costs, distinguishes a documented assumption from a realised reduction. To go further: explore the Finance for Non-Financial Managers training in Lausanne in the canton of Vaud, or browse our executive and employee training programmes in Switzerland.

In pictures: Finance for Non-Financial Managers in Lausanne

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