Unless you’re like the retail business manager who once told me that he was ‘making way too much money to worry about cutting costs’, cost management simply aims to achieve the most cost-effective way of delivering your goods or services to a given level of quality.
Cost management isn’t about reducing quality or short-changing customers. The low-cost airlines are arguably the best examples of businesses where cost management is successfully delivered. European airlines like Ryanair and Easyjet have either removed or now charge customers for many non-essential services. Similarly, discount retailers such as Poundland, Lidl and Aldi relentlessly focus on managing their costs.
Theoretically reducing operating costs will result in higher profits and better cash flow. The key however is to identify cost-reductions which don’t adversely affect revenue, quality or customer service.
Like my acquaintance in the retail sector, businesses tend to go through phases of cost management. When a business is enjoying rapid growth in revenues, costs don’t necessarily get the attention they deserve. However, before too long, the business has substantially grown and its cost base has added enormous complexity to the organisation. This situation is often not spotted by management and that can spell disaster.
Sometimes it takes a severe economic downturn to prompt managers to take a hard look at costs to try and see where savings can be made. We’ve listed some examples of areas where managers can start to make cost reductions – in addition to taking the CheckIt Challenge!
As a note of caution however, don’t try and do everything in one pass – it’s not necessary. Act in one area, then revisit it and keep refining things. Be sure you’re not being too aggressive in one area which can then affect other parts of the business by eroding quality, capacity or morale.
- Eliminate waste and avoid duplication
- Simplify processes and procedures
- Consider investing in better tools or technology
- Outsource non-core activities
- Negotiate better prices with suppliers
- Improve communication
- Prune product ranges and customer accounts to eliminate unprofitable business
- Introduce flexible working practices that benefit both the employee and employer
- Control non-essential overheads
- Take the CheckIt Challenge!