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What are some cost management strategies that you suggest?
I always tell people that a good cost management strategy is to focus on the profitable growth of their company rather than cutting costs. It is more productive to focus effort on developing what is working in your company and areas of growth. What are some other cost management strategies? What advice do you give people?
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3 Answers
Cost management has little to do with growth of a firm and much to do with how the firm is managed and whether it will be successful over time.
From a CFO's perspective, cost management is actually being able to choose between various paths a business may take using effective decision support processes. Cost management is not about saving paper clips, although avoiding waste is a part of cost management.
In my experience, failure of a business to carefully select alternatives to solutions of business problems is the key factor in overspending. In order to manage cost effectively, a growing business needs a financial model that allows it to project financially the results of various proposed actions and to select the most cost effective solution, or take no action at all if the cure is worse than the perceived problem. Along with the model is the need for a collective management decision making process in which the pros and cons of various decision alternatives can be weighed along with the financial results from the model.
An example of the kind of cost control I urge might be the need to solve a perceived missing feature from a software product that Sales thinks is hampering sales. The alternatives for solution to the problem range from doing nothing, outsourcing, hiring new engineers or licensing the technology from a third party that has it. This is a complex decision and one that reasonable managers could disagree on the solution. But using a model and a collective process should surface the correct decision at least cost to the company and highest success rate.
A final thought is that employees and managers of any company should have a culture that money is hard to raise and may not be there when needed. So all decisions to spend should have an appropriate delegation of authority and review to make sure that a budget is not broken and funds on hand will be adequate for the needs of the business. Key areas of spending such as travel should have clear procedures on what spending is allowable, and accounting needs to audit to these procedures.
I will try to answer my strategy without sounding like a sales pitch... since this is an area my company works in.
I have found success in my field where companies outsourcing cost savings based on a contingency, or % of the savings. Many times companies have their "sacred cows" that they are afraid to touch or look past till someone brings it to light. Whereas a independent 3rd party can look upon the everything with an unbiased opinion.
Case in point active invoice management. Telecom providers are terrible about sending out binders for bills, esp for large corporate accounts. Most individual's personal phone bill is usually around 8 pages in length, multiply it by 100 or 1000 users. We have worked for companies whose monthly telecom invoices stacked to nearly 3 feet tall. No company has the time or expertise to delve through it each month.... that is where we come in.
While I agree with the premise of the poster (focus on the profitable growth of their company rather than cutting costs), many areas of your operation are not directly related to growth. At some point, those areas should be reviewed for cost efficiency improvements. By periodically making adjustments, those other areas can contribute to your bottom line.
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