The spend reduction framework is a detailed guide for conducting an enterprise cost reduction project. Here is a look at some easy cost reduction strategies to expand your brands net profit margin by reducing common expenditures, without obstructing your activities, goals, or. Pdf critical success factors of strategic cost reduction. The book also presents the japanese ways of carrying out the globally popular cost reduction practices. Bad costs, the 10x differential concept, market disruption, as well as a detailed cost analysis of the insurance industry. A guide to strategic cost transformation in hospitals and. There is a difference between cost control vs cost reduction. At the end of the project your team will have a plan that outlines the actions to. Office of business and finance western michigan university. Our sustainable cost reduction approach puts in place five key levers that combine value chain insight and zerobased budgeting across direct, indirect, people and property.
The current economic crisis provides a lever for cios to get the most out of their strategic sourcing contracts by analyzing current spending and contract terms, establishing a cost reduction program and using suppliers as an extension of it to achieve cost reduction goals. Develop a cost conscious culture by embracing spend visibility and cost category ownership. Strategic cost reduction journey strategy deloitte. In the customer portal example, the cio had a running list of cost optimization ideas that would be of greater benefit to the business than delaying the project. Consistent with the notion of pricebased costing, several authors have argued that target costing is a superior approach to cost reduction and. The crucial priority isnt the costs you cut, rather where you focus resources to stimulate growth and differentiation. Typical results you can expect are anywhere from 5% to 20% savings. Yet, we now have both the compelling drivers and the practical means to make strategic cost reduction. In doing so, we strive to help our clients build scalable cost platforms to drive profitable growth. B r ag g cost reduction analysis cost reduction analysis tools and strategies. This slide deck discusses the following topics related to strategic cost reduction. Banks that pursue only traditional cost reduction programs will achieve cost benefits quickly. Cost reduction is the process of identifying and implementing ways to reduce the opex and capex of a business.
Directly address the drivers of consumption in your bank. Banking executives must secure the right capabilities for sustainable gains banks are actively progressing cost reductionbut may not succeed. The first thing you need to know is that you cant grow a company by cost reduction alone. And while technology opens up opportunities to improve operational capabilities and strengthen return on investment, the real keys to successful strategic cost reduction are the ambition and underlying culture of innovation within the organisation. Yet, we now have both the compelling drivers and the. If such a deficitreduction plan is to be credible, the federal government must adopt an aggres sive spending reduction program that includes reforming entitlement. Faced with increasing global competition, many firms are finding that costbased pricing is becoming a relic of the past, whereas pricebased or target costing is emerging as a key strategic tool. The significance of cost reduction and cost control derived from its function in profit maximization. In some industries, cost per unit falls on a quarterly basis and firms must continually find cost reductions to remain competitive. Strategic cost management is the provision and analysis of cost and management accounting data about a firm and its competitors for use in developing and monitoring the business strategy. The cost object is a unit or multiple units of a distinct product or service called a job.
Create a sharedservice organization for some or all it. Geps strategic cost management system can help you. Five steps to strategic cost reduction pwc 5 rethinking strategy and cost delivering strategic change and putting in place the operational capabilities needed to deliver it have always been difficult. Cost reduction programmes are commonly carried out in silos, without much more coordination than each having some portion of an overall rand target to meet.
These cost reduction strategies from kepnertregoe provide additional benefits that ripple throughout the business by eliminating waste, accelerating processes, and utilizing resources effectively. Five steps the problem is that many cost optimisation programmes struggle to deliver or fail to stick. Any organization that is successful using cost reduction and cost reduction can sell its product at a lower rate than its competitors without reducing its quality. Subtitled cutting costs with killing your business this book describes the key tools available for, and potential pitfalls in, implementing sustainable change. Top 10 it cost optimization ideas smarter with gartner. A strategic perspective find, read and cite all the. The slide deck also includes some slide templates for you to use in your own business presentations. Cost reduction is carried out as an expansion strategy or growth strategy while cost cutting is red signal symbolizing instability in the company.
Cost reduction strategies for smes synergee limited. Costmanagement programs need to be scoped as two to threeyear initiatives rather than as. A better approach is to use the initial cost reduction program as an opportunity to build a competency in cost management rather than in mere cost reduction. Cost reduction strategies can reduce operations costs while increasing productivity, allowing for strategic reallocation of resources.
Discuss the term job costing and process costing systems with examples job costing systems. Pressure to reduce costs is intensified by the challenge to deliver superior returns to investors by growing operations and minimizing their operational spend. Japanese cost management series on technology management. Understand the advantages of strategic cost management to help drive growth for your business.
And then the task becomes so complicated and fraught with sensitivities that little happens in the way of sustainable efficiencies. Target costing as a strategic tool mit sloan management. Mcgittigan shared the gartner top 10 list of cost optimization ideas. Driving business innovation while reducing it costs 7 even after using our framework, some opportunities may not be addressable due to various constraints, such as time to completion. Shields and others published effective longterm cost reduction. Cost reductions often go wrong, we believe, and our experience suggests that they can be done in a better way. Thus, it is a good idea to group and map initiatives in a grid to develop an implementation timeline. Strategic cost reduction primer powerpoint flevypro. There is a cost base that many companies miss when looking for efficiencies. This presentation is a training document about strategic cost reduction scr used by a major consulting firm in a cost reduction project. But though it is largely true that if you look after the pounds the pennies will take care of.
In the heat of a financial crisis, companies must focus on their financial viability, but they tend to cut about equally everywherewithout considering their strategic needsbecause that seems more straightforward, and in some. Cost reduction analysis to o l s a n d s t r a t e g i e s s t e v en m. The trick is knowing which cost reduction strategies to apply, and by how much. Critical success factors of strategic cost reduction 203 6. Nassau interim finance authority nassau county, new york strategic cost reduction analysis august 29, 2017. A strategic perspective article pdf available in journal of cost management 61. Strategic cost management and cost reduction solutions. Procurement cost reduction is the most significant motive for alliances by mnc subsidiaries in china, with more than 75 per cent of respondents rating that as significant, and with a mean of more than 3.
Effect of cost control and cost reduction techniques in. Cost reduction definition longterm sustainable tangible bottom line cost savings to the. Pdf cost reduction is usually confronted with conflicts and resistance. New, digital and agile entrants can outpace traditional incumbents by executing cost reduction swiftly and for the long term. A guide to strategic cost transformation in hospitals and health systems 5 eight action items can help hospital and health system executives and boards define the business strategies appropriate to their organizations, and the plan by which those strate. Organizing a costreduction program 7 with this information in an excel spreadsheet, it is a simple matter to sort the data its already been sorted in table 1. The methodology we propose is a version of value engineering ve and has been used successfully at hewlett packard compaq computer corp. Start with the biggest costs generally, it is wise to begin by looking at the biggest costs irst. Besides planning and controlling measures the management.
Applying a clean page, valuedriven approach to strategic workforce composition and deployment represents one of the greatest cost saving levers available to senior leadership. Nifa commissioned capital markets advisors, llc strategic consulting group cma to develop this report the report to address the forecasted deficits and to identify immediate. Deloittes strategic cost management offering focuses on structural, enterprisewide changes that produce sustainable cost savings, cost reduction solutions, and margin improvements. Cost reduction as an element of business strategy dca partners. Insights a strategic response to workforce cost reduction. Lack of clearly defined responsibilities for achieving it cost reduction business management role cost reduction addressed via isolated multiple efforts addressing the same set of costs it cost reduction as a hobby attempting to utilize part time internal resources who are already committed and overworked. It is the managerial use of cost information explicitly directed at one or more of the four stages strategy formulation, communicating the. A strategic approach to cost efficiency in the banking. Cost reduction tips for your strategic sourcing contracts. Third party goods and services such as marketing, logistics, it, property and production costs can account for between 1525% of an organisations total cost base but are often not given the same level of attention as other cost lines such as payroll or cost of goods. Leading your hospital to success, he reveals a proven, stepbystep leadership plan for managing costs at all types of hospitals in any location from small rural hospitals to large urban academic medical centers. With a focus on leadership approaches rather than financial techniques, this book explains how to. While many of the strategies of cost reduction and cost cutting are the same, every technique of cost cutting does not apply to cost reduction.