Japanese cost management series on technology management. Strategic cost management and cost reduction solutions. Strategic cost reduction primer powerpoint flevypro. 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. In some industries, cost per unit falls on a quarterly basis and firms must continually find cost reductions to remain competitive. Five steps the problem is that many cost optimisation programmes struggle to deliver or fail to stick. At the end of the project your team will have a plan that outlines the actions to. The cost object is a unit or multiple units of a distinct product or service called a job. It is the managerial use of cost information explicitly directed at one or more of the four stages strategy formulation, communicating the. Geps strategic cost management system can help you. 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.
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. 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 dif. Yet, we now have both the compelling drivers and the practical means to make strategic cost reduction. Cost reduction definition longterm sustainable tangible bottom line cost savings to the. Office of business and finance western michigan university. The slide deck also includes some slide templates for you to use in your own business presentations. 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.
The first thing you need to know is that you cant grow a company by cost reduction alone. Yet, we now have both the compelling drivers and the practical means to. The significance of cost reduction and cost control derived from its function in profit maximization. New, digital and agile entrants can outpace traditional incumbents by executing cost reduction swiftly and for the long term. There is a cost base that many companies miss when looking for efficiencies.
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. 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. Cost reduction is carried out as an expansion strategy or growth strategy while cost cutting is red signal symbolizing instability in the company. Applying a clean page, valuedriven approach to strategic workforce composition and deployment represents one of the greatest cost saving levers available to senior leadership. Most people think that controlling costs and reducing costs are one and the same when, in fact, they can generate two totally different outcomes. There is a difference between cost control vs cost reduction. Pdf cost reduction is usually confronted with conflicts and resistance. Deloittes strategic cost reduction offering focuses on structural,enterprisewide changes that can produce sustainable cost savings and margin improvements. The methodology we propose is a version of value engineering ve and has been used successfully at hewlett packard compaq computer corp. Costmanagement programs need to be scoped as two to threeyear initiatives rather than as. Cost reduction tips for your strategic sourcing contracts. Cost reduction strategies can reduce operations costs while increasing productivity, allowing for strategic reallocation of resources.
Strategic cost reduction journey strategy deloitte. 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. Nassau interim finance authority nassau county, new york strategic cost reduction analysis august 29, 2017. Critical success factors of strategic cost reduction 203 6.
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. This presentation is a training document about strategic cost reduction scr used by a major consulting firm in a cost reduction project. The book also presents the japanese ways of carrying out the globally popular cost reduction practices. 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. A guide to strategic cost transformation in hospitals and. Typical results you can expect are anywhere from 5% to 20% savings. Strategic cost management focuses on the cost reduction and continuous improvement and change than cost containment only. This slide deck discusses the following topics related to strategic cost reduction. Mcgittigan shared the gartner top 10 list of cost optimization ideas. 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. 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. Shields and others published effective longterm cost reduction. 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.
A strategic perspective article pdf available in journal of cost management 61. These cost reduction strategies from kepnertregoe provide additional benefits that ripple throughout the business by eliminating waste, accelerating processes, and utilizing resources effectively. It has significant impact on a financial institutions profitability since the spread between the cost of funds and the interest they charge from their borrowers governs their profits. Banks that pursue only traditional cost reduction programs will achieve cost benefits quickly. Cost reductions often go wrong, we believe, and our experience suggests that they can be done in a better way. Pressure to reduce costs is intensified by the challenge to deliver superior returns to investors by growing operations and minimizing their operational spend. Deloittes strategic cost management offering focuses on structural, enterprisewide changes that produce sustainable cost savings, cost reduction solutions, and margin improvements. A strategic approach to cost efficiency in the banking. Pdf critical success factors of strategic cost reduction. Finally, those companies that have made an ongoing cost savings program a part of their business strategy generally find it easier to take extraordinary cost cutting.
Discuss the term job costing and process costing systems with examples job costing systems. Cost reduction is the process of identifying and implementing ways to reduce the opex and capex of a business. 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. Cost reduction as an element of business strategy dca partners. In doing so, we strive to help our clients build scalable cost platforms to drive profitable growth. 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. 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. 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. Start with the biggest costs generally, it is wise to begin by looking at the biggest costs irst. Develop a cost conscious culture by embracing spend visibility and cost category ownership. Besides planning and controlling measures the management. Understand the advantages of strategic cost management to help drive growth for your business.
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. Create a sharedservice organization for some or all it. Subtitled cutting costs with killing your business this book describes the key tools available for, and potential pitfalls in, implementing sustainable change. Yet, we now have both the compelling drivers and the. The crucial priority isnt the costs you cut, rather where you focus resources to stimulate growth and differentiation. 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. Thus, it is a good idea to group and map initiatives in a grid to develop an implementation timeline. Cost reduction strategies for smes synergee limited. B r ag g cost reduction analysis cost reduction analysis tools and strategies. 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. Top 10 it cost optimization ideas smarter with gartner.
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. Directly address the drivers of consumption in your bank. Effect of cost control and cost reduction techniques in. Strategic cost reduction takes a holistic approach to cost reduction, placing it in a wider strategic framework. If such a deficitreduction plan is to be credible, the federal government must adopt an aggres sive spending reduction program that includes reforming entitlement. Banking executives must secure the right capabilities for sustainable gains banks are actively progressing cost reductionbut may not succeed. Target costing as a strategic tool mit sloan management.
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