There are two key decisions critical to successful execution of cost
management strategies: understanding cash flows and changing the how
cash flows. Failure to set these two elements as the foundation
concepts for enterprise cost reduction guarantees failure of cost
control implementation over the long term.
Often, those two needs are complimentary. Implementing policies and systems that more carefully track spending often involve systems that can later expand to include an e-procurement platform. Such centralization as opposed to haphazard local spending controls instill the spending discipline needed for cost management strategies.
Once those are in place, there are many areas that the practical manager looks to for executable cost management strategies. These cost management strategies share one common thread: only by improving demand forecasts and consolidating purchasing, processes, and people can long-term savings happen.
Improve Demand Forecasts
Knowing what you need to spend money on starts with knowing what you will need to produce or support based on your primary industry. For information work, demand may primarily imply staffing decisions, while in manufacturing it may impact raw material and capital investment as much as staffing.
The first step in purchasing consolidation is to increase visibility on current expenditures. Many companies are looking to e-procurement systems that both track spending and offer contractual discounts through vendor agreements. Others use existing systems but put spending controls and preferred vendor systems into place.
Redundancy exists in every organization. It can be reduced by first mapping job functions within the company, analyzing workloads and determining what functions can be supported remotely and which require on-site presence. Often, functions clearly lend themselves to consolidation.
Whether the consolidated process is product development, customer service, sales, information technology support, procurement or human resources, the result is generally fewer people fulfilling the function. Supporting multiple sites from central locations reduces a number of total support personnel and allows for more in depth knowledge.
The Role of Information Technology
When evaluating cost management strategies, a critical task is forecasting both front and end and ongoing expenses associated with the strategy implementation. For example, centralizing information technology support may require special remote monitoring software or increased network monitoring devices.
There also may be "soft costs". The lack of trained IT support personnel may result in additional system down time, negating the savings on the cost management strategies related to IT support consolidation with costs on worker productivity dependent on the system uptime.
Both hard and soft costs are critical considerations when determining which strategies to pursue. Critical to any decision is follow up and measuring of each strategy. Without measurement, no conclusions can be drawn about the success or failure.