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Guide to cost management launched by Deloitte


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Contact:  Johnny Sollitt-Davis
Corporate Affairs & Communications
Mobile: 0407 269 305
Tel: +61 (0) 2 9322 7256

Cost savings are the hottest topic amongst today’s business leaders and the Chief Financial Officer (CFO) is under the most pressure to develop and drive the strategies that will deliver them, said Donal Graham who leads Deloitte’s CFO practice, as he launched a new guide from the professional services firm called: “Managing cost in a downturn – creating an agile cost structure” today.

As many companies face plummeting revenues and fading consumer confidence the guide is essential reading. It outlines the cost reduction opportunities that successful organisations are using to survive, create agility and in some cases thrive despite today’s volatile economic environment.

Deloitte Consulting Partner, Donal Graham said: “Depending on the level of cost improvement required and the time available to achieve it, the guide gives a brief overview of the short and long term strategies that could be the difference between success and failure.”

“Although the longest term solutions outlined in the guide such as business model redesign offer the biggest rewards of around 20-30% reduction in the cost base, they require the largest cross company commitment and only start to deliver returns after two to three years.”

“This could be too long for some companies that need results now and don’t have the budget available to fund these more strategic projects,” said Graham. “However, the guide also details belt-tightening efforts such as hiring freezes, deferred expenses and reduced travel which are almost immediate in their impact and could help to fund the longer term projects that can sustain cost reduction long into the future.”

“The potential savings of quick wins are relatively small when compared to the more strategic options but they can create breathing space and return confidence,” said Graham.

“Building momentum around smaller successes can also help to rally people around your bigger more ambitious long term cost reduction goals.”

Caroline McGlashan, Deloitte Consulting Partner said: “The silver lining to the current economic cloud is that any barriers to change that may have existed previously should be a thing of the past. This should leave the way clear for the executives to break down organisational silos and begin to realise the biggest cost saving opportunities.”

Do not waste a crisis

“Our advice to corporate leaders is don’t waste a crisis, use it to gather momentum, build agility and rally the whole company around cost reduction initiatives.”

“With a flexible cost structure in place companies can scale back costs in response to slowing demand and can also take advantage of unexpected opportunities such as bargain-priced acquisitions. An agile company can also respond quickly when the economy rebounds by freeing resources to invest in new products and services, marketing and advertising which can help get a jump on the competition,” concluded McGlashan.

Managing cost in a downturn

Although many businesses can benefit from a more aggressive approach to cost reduction during a downturn, the specific improvement opportunities vary from one company to the next. Here are seven practical tips to help corporate leaders to choose the right approach and accelerate the benefits:

  • decide how much cost improvement is needed
  • start with the obvious
  • take an enterprise view
  • balance short-term and long-term improvements
  • choose the right business model
  • protect strategic investments
  • actively manage change

The table below shows the expected cost savings that are achievable based on the typical cost levers that an organisation can pull.

 

Tactical improvements

 

 

 

 

 

 

Strategic, structural improvements

Cost levers

Description

% Save

Spend reduction and demand management

Focuses on strategic sourcing, demand management and tax management to aggressively reduce external spend

10-20%

Business process organisation

Focus on streamlining business processes via simplification, elimination or outsourcing

5-10%

Infrastructure rationalisation

Focus on IT and Real Estate portfolios, projects, platforms and support rationalisation

15-25%

Service Delivery Model and Organisations alignment

Focuses on re-aligning staff based on method of adding value and relationship to business

10-30%

Business model redesign

Shift to a more cost-efficient business model

20-30%

Deloitte’s ‘Managing cost in a downturn – creating agile cost structures”  outlines the structural cost improvements that can position a company to prosper during a downturn by protecting margins and capturing market share.

The full document can be downloaded at http://www.deloitte.com/dtt/leadership/0,1045,sid%253D220082,00.html

For further information:
Donal Graham
CFO Practice Lead Partner
Mobile: 0419 255 340

Caroline McGlashan 
Deloitte Consulting
Tel: +61 (0) 392086949

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