Cost Analysis and the Organization
By Eric Johnson
Every organization engages in constant analysis of the business and the reduction in costs is no exception. Obviously, during the pandemic, everyone is making sure to account to the last penny where they can save and pull costs out of the business. Even during good times, responsible stewards are always on the hunt to see where they can create efficiencies and do more with less.
Operations is a great place to start when looking to reduce costs since most of the activities occur here. While a good start, organizations need to take into full account the total aspect of the business. This means all processes used to meet demand and customer satisfaction, while ensuring that the customer experience is still maintained at its highest level. In these cases, cross-functional teams are imperative. As a guide, the accounting group should provide a liaison so that operations can have a full understanding of how its activities convert into financial statements.
In addition, there are other areas in the business that affect costs as well. SG&A costs are areas where managers will attempt to make reductions as it is perceived that these cost savings can be obtained without necessarily impacting operations and customer experience. Indeed this can be true, but special care needs to be taken as to where indirect costs are propelling the business forward and should be retained, vs. those that can be reduced based on efficiencies or business-related aspects.
Over the next several posts, we will take a look at some examples of organizations that have performed cost reduction exercises through various approaches – from organization-wide down to distinct lines of business. From product-oriented companies to services, reducing costs in the business should be a comprehensive affair, involving all affected stakeholders. Additionally, it should involve some aspect of customer analysis and involvement, either through surveys or direct customer interaction.
Taking all this into account should indicate that this is never easy, nor is it 100% foolproof. There are some organizations that after cutting costs had to reinstall certain processes due to either inadequate planning or not taking into account all variables. However, for those organizations willing to put in the effort, there exists the tremendous potential to reduce various expenditures while keeping customers happy, in effect strengthening the organization for survival in the marketplace.