BETTER BUSINESS
Don’t just cut your costs – manage them Effective Cost Management By Phil Turtle, Managing Director, Turtle Consulting
Knee-jerk cost cutting can have negative repercussions. Phil Turtle outlines eight steps to effective cost management.
1. Cost Revenue This is the most important item in effective cost management. Many companies simply do not hold accurate information on what their costs really are. In looking to manage its costs, a company must fi rst identify its sources of revenue. How much is coming in from sales of which products and services? Which are the highest spending customers? Then, the company needs to work out which specifi c costs are implicated in producing its revenue stream. Finally, a company’s overheads and costs not directly linked to revenue generation must be identifi ed.
2. Department Confl icts As a fi rst step, draw up a basic fl ow chart of your company’s workfl ow. This will help you to understand how departments are affected by each other. For example, what kind of impact does warehousing have on sales? In any organization, the way one
department operates is infl uenced by other parts of the company. So, in order to reduce complexity, a business owner must be constantly questioning why work is done, and how it can be done more effi ciently. Once you have drawn up your fl ow chart, you will probably start to observe that there are a number
of extra and unnecessary steps involved in your company’s operations.
3. Train Your Employees Educate your employees in decision- making, team-building and problem- solving so they are better able to control their own costs. Most people want to do a good job and to help the company they work for to be successful. When a company invests in its
people by training and skilling them up, especially in a recession, it will reap the rewards of a work force who work together for the good of the company. Similarly, if you actively involve your
employees in the cost management process, you will get the best out of them. If you are actively on the look out for suggestions from your employees you will, without a doubt, fi nd better and more cost effective ways to do things.
4. Your Business Plan Every company needs to have a long-term business strategy. Cost management should be part of the strategy and be infl uenced by the strategy. Cost decisions should be measured against the company’s strategy, rather than a current short- term situation. A company should not buy an
excessive amount of inventory just because the manufacturer has lowered the price to get rid of it. The company should be buying the amount it needs to satisfy its customers.
5. Easy Savings There really is no such thing as a quick save when looking to manage your costs, but there are some simple changes that you can make right away. Some small costs can be reduced with little risk of affecting the quality of your service. Check supplier invoices carefully for
overcharging e.g. missing discounts. Get rid of obvious overcapacity e.g.
paying rental on spare telephone lines, unnecessary subscriptions etc. Put a stop to blatant waste e.g.
heating your premises when they are unoccupied, lights on when not needed etc.
Only use fi rst class post when it is
really necessary and tell your staff to do the same.
38 NETCOMMS europe Volume II Issue 3 2012
www.netcommseurope.com Source cheaper suppliers who will still
offer you the same level of service and products.
6. Benchmark Yourself As part of your cost management overhaul, benchmark yourself against other similar companies. What is the industry average spend in different areas? How do your costs compare? Periodically review what you are doing and how you are doing it.
7. Talk to Your Customers Take time to talk to your customers and ask them if they think you are providing them with anything they do not need. For example, maybe the expensive same day delivery option you offer is not really required or perhaps your packaging is better than necessary. Your customers are the best people
to tell you about which parts of your service are important to them and which are surplus to their requirements.
8. Review Your Finances Cut back on working capital through just-in-time purchasing, better credit control and agreeing longer payment terms with your suppliers. Consider low interest loans rather than overdrafts, and knock any unnecessary loans or overdrafts on the head. Apply for any grants or subsidised
loans that you may be entitled to. (Find out more at
j4bgrants.co.uk which details grant support for business) Get the most out of your premises by sub- letting extra space. Check out
www.uswitch.co.uk to see
if you can reduce your utility costs and check out alternative telecoms suppliers.
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