Thursday, February 1, 2007

Resource Allocation

Tom says:
Now that the check for big-ticket items have been cut and we're close to hiring our management team, I'm becoming intimately acquainted with the concept of resource allocation.

Yesterday, I listened to a pitch from a security company whose product line ran anywhere from $2,000-25,000. At the essence of the pitch was fear: if we're leaning toward the low end of the range, then we're setting ourselves up for disaster.

This kind of decision requires a risk/reward analysis. Does a state-of-the-art video surveillance system that's tied into the POS system really pay for itself with the amount of shrinkage it reduces? Is your only choice to spend a ton of money now or lose that same amount slowly over time?

Or, is there another way? The research I've done says that following good cash-handling procedures and vigilant awareness reduces your risk of an external security breach by making you a less desirable target for theft and a little deterrence can go a long way toward achieving that. What remains is that if a thief really wants to steal from you, they'll find a way. Your goal is to deter them just enough not to make it worth their while.

That same research also says that you're most at risk for an internal security breach. In a restaurant, that can mean bartenders over-pouring drinks, bartenders and servers not charging properly for items, an excessive number of voided items on order slips, cooks and cleaning crews walking product out the back door, customers walking away from the bar on a busy night and not paying their bill.

Here, I believe, is where you have to make a philosophical choice: invest heavily in surveillance equipment that engenders a environment of fear and distrust or apply old-fashioned methods like strict inventory controls, hiring and training of competent and ethical staff and treat them with respect as integral parts of the team. The latter creates a working environment that's built on respect, empowers staff and allows them to invest themselves in the success of the restaurant. If you create that, then anyone who may be inclined to engage in dishonest practices will be less so. But if you create an environment where staff feels unappreciated and/or slighted and you make it easier to justify an over pour here, a voided item there.

A certain amount of shrinkage happens no matter what you do. So, you weigh the risks and rewards of paying now or paying later and hope you make the right decision. Pretty much like everything else in life.

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