Cost Management
24
COST MANAGEMENT NOT REDUCTION Brendan Cull Oxford Business Management Ltd
-
Upload
brendan-cull -
Category
Documents
-
view
333 -
download
1
Transcript of Cost Management
COST MANAGEMENT NOT REDUCTION
Brendan Cull
Oxford Business Management Ltd
COST MANAGEMENT; FOR LIFE NOT JUST A RECESSION
• Spend money (wisely) to make money• “More businesses go bankrupt due to poor Cost
Management than poor Sales efforts”• How much Sales effort is required to replace
wasted overhead costs?• Cost Management an important differentiator• Cost Management
• Needs to be a passion• A continuous process
COST MANAGEMENT, CONSIDERATIONS
• In reality? Cost management is largely about reduction (though it does vary as to what part of the business cycle a company is in)
• However, short-term reduction -long term mistake ?– “A reason why it is cheap”– “Buy cheap, buy twice”
• Company focus is often: – Sales/Product: “Where the money comes from”– Cost Management: “Where is the money going to?”
• “More businesses go bankrupt due to poor Cost Management than poor Sales efforts”
COST MANAGEMENT:How/What stops efficient management?
Types of (not people) cost variables
1. Price vs. Usage vs. Process:
• Price: “Why are you paying that much?”
• Usage: “Why are you using so much?”
• Process: “Why are you using that at all?”
COST MANAGEMENT:How/What stops efficient management?
2. Blockers/Enablers:
• Time
• Expertise
• Inclination
Success is underpinned by a Cost Management Methodology
“Largely a science with a bit of art thrown in for good measure”
TIME – Why is it an issue?
• Too busy doing/selling• Management of Suppliers is time consuming
– Detail driven– Requires follow-up/ records/ management– Tracking of information/ dates– Tracking of events/ needs etc. which often change
• Sucks time if there are problems/issues
Need to keep on top of SuppliersAnd remember
Yesterday's good deal is tomorrow’s disaster
EXPERTISE
• Knowledge of what?– Product, market place, process– Terminology– Alternatives– What is possible? / What is not possible?
• Difficult/confusing unless researched and understood
• Detailed knowledge can be too much to manage– “I did not set this company up to become an expert on Utilities”
• Always changing
Need to keep on top of the subject area
INCLINATION
• Have to want and enjoy doing it• To have an additional interest in it• What is it?
– Problem solving– Haggling– Playing the “game”– Prepared to: “Bang the table”; “Kiss and cuddle”; “Push your
luck”– Get involved but, NOT emotionally– Empathise with Supplier but remember “who is paying the bills”
• It is recognising when a “good supplier” is no longer that
Be a “Barrow boy” and “Rottweiler”
NEXT STEPS
Having “created” the Time, gained the Expertise, got psyched up, now what?
Like an onion, the more you peel away the layers, the more you want to cry!
THE LAYERS OF THE ONION
Price: “Why are you paying that much?”– Suppliers
– External
– Easiest layer
Usage: “Why are you using that much?”– Largely internal
– Challenging
– Harder and crying a bit now
Process: “Why are you even using it?”– Very internal
– Very challenging
– Very hard and really in tears now
If going to start looking, what is best?
• Have a Methodology which:
– Supports you
– Gives an edge (“Knowledge is Power”)
– Captures information
– Enables follow up
– Evidence when things get messy
APPLIES TO ALL LAYERS OF THE ONION!
What is “The Methodology”?
1. Identification of area (focus)
2. Gather internal data
3. Research (external) }
4. Analysis } Iterative
5. Negotiation } process
6. Agreement }
7. Implementation
8. Post Implementation
What is “The Methodology”?
1. Idea; areas of focus2. Gather internal data:
– Contracts– Invoices (Usage/Price)– Who uses this and why?
3. Research (external):– Suppliers– Products– Issues/ terminology– Users (blogs)
4. Analysis:– What is currently being done?– What would alterations do for you?– Who is the best to contact and why?
What is “The Methodology”? continued
5. Negotiation:– Have target in mind– Remember: There are plenty for fish in the sea; You do not have to say
“Yes”; Time (should be) on your side– The first deal is not the best deal:– Take what is on offer AND ask for more
6. Agreement:– Internally (impact)– With supplier– In writing– Understand implications
7. Implementation– Manage it based on expectations
8. Post Implementation– Does it do/cost what you had expected?– If NOT, challenge immediately
How might this look in practice?
Price: “Why are you paying that much?”– What your suppliers charge you for a product/service– External: Negotiation and Quality– Internal: Alternatives:
Usage: “Why are you using that much?”– Internal: “Who is using what?”, “Why using those products/services?” – Use less through: Better management/control, understanding, communication
• More of a people issue: Why they do what they do
Process Improvement: Business Process Re-Engineering
– Hardest as involves challenging people– “Why are you even using it at all?”
• “Because we always have!”• “It is what the business/ customer etc. want”• “There’s no alternative”
– 3 Simple Questions:
1. “Do you have to do it?”2. “Can you do it smarter?”3. “Can you get someone else to do it?”
What sized companies?
• LARGE:
• Responsibility vs. dedicated resources
• MEDIUM:
• Loss control vs. not have the resources
• SMALL:
• Too busy to:o Acquire the expertise
o Manage the suppliers
o Manage the Business usage
• Home
• Applies to your personal spending as well
Example: Small
Example A: Brother-in-LawTime Expertise Inclination
1. Idea Yes
2. Data Yes
3. Research Yes Yes
4. Analysis Yes Yes
5. Negotiation Yes Yes Yes
6. Agreement Yes Yes Yes
7. Implementation Yes
8. Post Implementation
Example: BigB: 132 Handsets – Client• Mid contract • Re-Negotiated tariff• Saving £2,000 per month• Promise of £300 cash back (£40,000)
• Reneged (£200)• I looked elsewhere• Found better deal:
– Matched £300 (£40,000)– Saving additional £1,000 / month– Additional extras– Total £50,000 over 2 years– Free Blackberries!
• Original supplier cash back– £330 too late!
All underpinned by: TIME, EXPERTISE, INCLINATION, PROCESS
Example: UTILITIES
• 33 sites
• Different contract end dates – keep changing
• Automatic roll over unless stopped(50% increase):– Better negotiated rates (25% average)
– Terminations• Within contractual obligation: (BG 120-90 days; SP 90-30 days)
• Confirmations (often not sent out)
• Objections (when challenged, most conceded)
• Rejections (often for financial and easily dealt with)
• Post implementation– 100% with 1 supplier had wrong rates!
WHAT CAN YOU DO?
• Focus on areas of cost that are– Significant– Controllable
• Follow the Methodology– Decide what you want to achieve– Gather the data– Research alternatives– Negotiate with confidence– Manage the implementation
• Make notes of what is said, done and why• Push harder than you might be inclined to• Enjoy!
Take aways
• At home:
– Look at where you are spending your money
– Contact key suppliers and ask them contract dates, termination windows and rates etc
– Ignore the “retaining rubbish” (FUD)
– Be aware that there are alternatives
– Always ask for more, for less
– You have nothing to lose!
WHO AM I AND WHY AM I TELLING YOU THIS?
• Accountant -> Operations
• Companies worked for include:
–
– Fired Earth, The Internet Group, Business Direct, Luminar, Home Computer Solutions
• Common themes:
– Numbers are important
– There is always waste
– Challenge and question – “Complacency Kills!”
