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The business world is constantly evolving and the way we approach costs has also changed. Business owners are increasingly looking for ways, strategically, to manage the full scope of their business costs. With time and resources so precious, it is imperative that every effort is directed towards creating sustainable improvement to the bottom line.
In our experience, most businesses make short term cost reduction decisions. Regrettably, almost all in-house cost reduction exercises end in failure with costs creeping back in very quickly. In contrast, best practice cost management goes way beyond simply “counting the beans”: its disciplines providing an important way to drive the organisation forward.
This more strategic approach to managing costs can be tackled internally, but it requires the right people; the right knowledge; the right tools, and the right processes. Our research findings (below) suggest these are not abundant. In their absence, not only may we be fooling ourselves with the illusion of “running a tight ship”, but, importantly, missing out massively on opportunities to build a stronger platform for growth.
It’s time to reflect and think outside of the jar!
This White Paper includes:
- Internal attitudes to cost management are changing (research from Management Today)
- Cost reduction v cost management in a nutshell – what’s your approach?
- Where does Auditel we see the future
- Your invitation to a free 30 minutes structured strategic cost review
Internal attitudes to cost management are changing but cause for concern remains
According to a survey by Management Today magazine:
- Cost management is on the boardroom agenda for 82% of organisations however 7 out of 10 firms do not have a strategy in place.
- 73% undertake this process in-house, yet experience suggests that they are ill-equipped to deal with the task. 33% of business owners admitted that a lack of understanding within their organisation represented a significant barrier to effective cost management.
- While 47% of businesses saw cost management as a way to improve efficiency and effectiveness, somewhat surprisingly only 31% worked to agreed service levels and only 31% engage suppliers through competitive tender.
- 67% of businesses still regularly receive incorrect invoices – a truly alarming statistic.
Worryingly 95% of cost reductions achieved during the recession are expected to return – that’s £90bn of cost across UK firms. Not our figures, but KPMG’s and an absolutely staggering sum.
What is strategic cost management?
“The greatest obstacle is a genuine lack of understanding between simple cost cutting exercises and strategic cost management” – Ron Yellon, Auditel.
Our practical experience, base on 24 years and work with almost 4000 clients, supports these findings. Most internal cost reviews end up as a cost reduction exercise. They are often short term, project–based, and, more often than not, the targeted outcome is based purely on saving money. Although there is a perception that a saving has been made, if there is a lack of management oversight, as night follows day, prices will creep up and service levels will reduce, with a knock-on effect on other areas of the business.
To counter this, in line with any business strategy, there must also be a strategic cost management plan. Informed by expert industry and market knowledge, this plan should support the business by identifying the desired benefits, not just in simple financial terms, but also in terms of process enhancement, effective supplier relationships, improved control and risk management and other opportunities. The plan should align your cost base to your strategy and be implemented to deliver sustainable results.
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- Short term one-off projects often in response to a crisis
- Focused on an isolated business unit or a single line in the ledger
- Undue weight given to headline prices with an unclear baseline
- Adversarial approach to suppliers which is potentially damaging
- No ongoing process to ensure costs do not flood back in
- Subject to “the knowledge gap” and missed opportunities
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- Long term planned approach aligned with strategy
- Holistic and dynamic process designed to be sustainable
- Decision-making informed by the “total cost of ownership”
- Suppliers are allies with independence and objectivity retained
- Focus on value for money and organisational outcomes
- In-house or consultative: the right people, knowledge, tools and processes
Where do we see the future?
For a business to take advantage of these and more opportunities they must have the right people, tools, knowledge and a process that produces sustainable and value driven benefits throughout the organisation year on year.
Take a moment to consider the following questions:Image may be NSFW.
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Measurement
- What was the true cost of your last cost reduction exercise?
- Did you establish an appropriate starting point (or last year’s invoice?)
- Do you know what you achieved (your ROI)?
Scope
- How confident are you that the full opportunity for the business was identified?
- How many suppliers were engaged in your process?
- Was this right across your business and costs, or limited to one department and cost area?
Outcomes and Impacts
- Did you set out with planned benefits in mind, and for the resources saved?
- Were these realised in practice? If not, why not (barriers, limitations or constraints)?
- How did you ensure that the savings you achieved were sustainable?
Meet me for a structured strategic cost review
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If you are a business owner or finance director who wants to integrate your cost management effort with your business strategy to achieve more than simply short-term monetary benefits, then we definitely should be talking. Auditel is the UK’s leading cost management specialist.
We are offering you an opportunity to take advantage of a short structured meeting. This is a valuable exercise in itself.
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Benefits
- reflect on the answers to the questions above
- understand exactly where the opportunities lie within your organisation
- reach a fair appraisal of where you are in managing the full scope of your business costs for sustainable improvements to your bottom line.
The session will take between 30 and 45 minutes. It is free, confidential and without obligation. There’s nothing to lose, and it could just transform the way you view your expenditure.
So why not take a moment to think outside the jar?
Contact me today to book your Strategic Cost Review..
[contact-form]Ron Yellon, Auditel.
01234 865869 | ron.yellon@auditel.co.uk | @ronconomics