Steps/Procedures In A Costs Awareness/Effectiveness Exercise ( Part 2 of 4)

From Part 1,we can better understand the difference between a pure cost reductions/cuttings and cost awareness/effectiveness.

This article attempts to relate how we can perform a cost awareness/effectives exercise:

Some of the following steps might include the following:

1. Drill in to find out WHERE does the company’s cost come from;
2. Review critically all major expenses (after item 1);
3. Review some of your company’s key KPI using ratio analysis to detect any discrepancy:

• Revenue Growth versus Customers and Company’s Headcount;
• Operating Cost/Revenue
• No. of Staff
• Sales Per Employee
• Sales Per customer
• Operating Cost Trend Out Pacing Revenue Growth
• Headcount Versus IT Automation Spending
• Any others that are relevant to your organization

    4.  When performing step 3,remember that the above analysis should be done relative to your nearest competitors and should be compared “ best in class”/industry standards.
In many cases,the Accounts Payable module on records like the various suppliers used and the actual costs incurred will prove very useful. You can even do an ABC analysis

   5. Present the facts to Management and various operating heads for buy in

   6. Have a timetable or snapshot of the various expenses to reduce.( refer to Part 4 for an illustrated example). Also read the earlier topic written on the purchasing savings by Telekom Bhd

• Cost Reduction/Awareness/Effectiveness – Suggestion KPI ( Part 3 of 4)
• What is Cost Effectiveness ( Part 1 of 4)
• Franchise What Are The Initial Set Up Costs and Recurring Costs
• Steps In Implementing Activity-Based Costing System(ABC):
• Competitive Analysis Using Financial Ratio Analysis