In What Ways Can We Manage or Even Reduce Organizational Costs?
Cost control is often a dry subject and many managers may put it quite low on their list of priorities, especially when times are good or profits are high. However, when sales and profit slow and/or economic conditions deteriorate, managers often have no choice but to make painful cuts and look at where sensible reduction can best be made.
So what are the most popular general costs to cut for most organizations (accepting that every enterprise is different and may have some unique areas worthy of consideration)? What follows is not intended to be a comprehensive set of possible actions but rather a checklist of items from which an organization may choose as appropriate. The options are as follows:
- Sell more products and/or services. People forget that greater revenues help to reduce cost saving targets. In other words, selling doesn’t cost but pays.
- Benchmark key activities and costs to identify long-term opportunities for significant cost reductions.
- Identify your major costs, such as staff, raw materials and other supplies, premises, utilities, IT costs, travel, transport, capital expenditure and financing costs.
- Establish cost budgets and monitor actual costs against budget as part of a systematic cost-control process.
- Review how activities and costs contribute to achieving your business objectives and quality standards.
- Involve employees by explaining what you are doing and encouraging cost-saving suggestions; consider offering incentives.
- Consolidate purchasing with a small number of suppliers and negotiate improved terms and discounts.
- Eliminate unnecessary activities, duplication of effort and unnecessary waste; reduce obvious overcapacity.
- Control excessive costs – for example, over-specified supplies.
- Identify opportunities to improve efficiency; use technology where appropriate and consider outsourcing non-core activities.
- Design products and services to use standard or easily repeatable processes; improve quality control to minimize waste.
- Improve financial control; refinance expensive overdrafts with loans and minimize working capital.
- Always shop around when buying any product or service and decline the first price offered.
- Shop around for cheaper versions of everything at least once a year.
- Review renting or leasing equipment rather than buying it.
Each of the above will have a different impact in one organization versus another (usually mainly depending upon its size and industry focus). However, in most cases, giving focus or the attention paid to just half a dozen of these ideas will be sufficient to make a very significant difference on the so-called “bottom line”.