Navigating economic turbulence while pursuing growth opportunities requires business leaders to reimagine operations and adopt new, innovative processes. Begin by analyzing your cost management levers then take action to lower costs and improve operational efficiency.
Common Cost Management Levers
Read our breakdown of common cost management levers to help you understand how to approach cost optimization across your business.
| Programs / Projects: Activities with a finite start and end date | Products / Services: Capabilities to meet internal user and customer needs | Operating Expenditures: Ongoing costs required to support products / services | |
| Strategy | Assess project portfolio to determine which projects to continue, delay, reduce or eliminate. Identify mandatory projects and look for opportunities to optimize costs such as discretionary spend, contractor spend. Evaluate all others with multi-factor qualitative and quantitative analysis. | Support ongoing ideation and innovation for new business contexts and unmet needs. Assess product portfolio using the 80/20 rule, then consolidate and simplify. Understand true cost to serve and restructure cost base. | Benchmark and evaluate current macro environment and cash flow generation to inform budget. Address high-impact cost-savings areas first across SG&A, OPEX, including infrastructure (e.g., property, IT). Reallocate resources to opportunities with high and/or quick returns. |
| People | Realign high performers to priority projects. Evaluate hiring, reskilling or outsourcing vs. time to value and time to market. | Optimize resource alignment to the most important products and customers creating different programs/service levels for different tiers. | Measure capacity vs. demand. Assess productivity levels by geography, product line and functional area. Implement new operating model and working practices. |
| Process | Streamline project portfolio management processes. Instill flexibility into decision making (e.g., toll gates). | Reassess the variables and the weighing of the product prioritization methodology to promote quick return rather than longer-term strategic fit. | Eliminate redundancies and reduce complexity. Reengineer processes to drive efficiencies and market differentiation. |
| Technology | Automate manual processes using RPA and digital technologies. Assess options to shift to cheaper solutions / systems. Evaluate opportunities to harness Big Data and actionable analytics to improve decision-making and break down silos. | Integrate technology into products and services, e.g., automating order taking to reduce costs or providing clients with self-service reporting capabilities for added value. | Evaluate total cost of ownership. Use technology to increase standardization throughout the organization. Capture granular end-to-end data (process mining, quality KPIs, etc.) and fix the highest impact issues. |
Seven-Step Plan to Initiate Cost Optimization
Cost optimization should be approached holistically. Think about both short-term and long-term implications. To implement cost optimization initiatives effectively, consider the following steps:
- Perform a comprehensive cost analysis: Conduct a detailed analysis of all expenses and identify areas where costs can be reduced or eliminated. This analysis may include overhead costs, procurement, production, logistics, and any other relevant areas.
- Set clear cost optimization goals: Define specific, measurable, achievable, relevant, and time-bound (SMART) goals for your cost optimization initiatives. These goals will provide a clear direction and enable you to track progress effectively.
- Engage employees and stakeholders: Involve employees at all levels of the organization in the cost optimization process. Encourage them to contribute ideas, identify inefficiencies, and propose solutions. Engaging stakeholders, such as suppliers and customers, can also provide valuable insights.
- Prioritize cost-saving opportunities: Rank cost-saving opportunities based on their potential impact and feasibility. Focus on initiatives that yield significant savings while considering factors such as implementation complexity, potential risks, and impact on other areas of the business.
- Implement cost-saving measures: Develop and implement specific actions to reduce costs. This may involve renegotiating contracts, optimizing supply chain processes, adopting new technologies, or reevaluating internal workflows and procedures
- Monitor and measure progress: Continuously monitor the impact of cost optimization initiatives and measure progress against the defined goals. Regularly review financial statements, key performance indicators (KPIs), and other relevant metrics to assess the effectiveness of the implemented measures.
- Foster a culture of continuous improvement: Encourage a culture of continuous improvement by rewarding and recognizing employees who contribute to cost optimization initiatives. Regularly review and reassess cost-saving opportunities to ensure ongoing efficiency.
Cost management initiatives encourage business leaders to assess options and make strategic financial decisions without compromising quality, customer satisfaction, or the company’s ability to innovate and adapt to market changes. The professionals at Hancock Advisors guide their clients through the cost analysis process to reduce expenses and optimize the value of their companies. Contact us for more information.
Hancock Advisors, headquartered in Atlanta, Georgia, provides strategic advice to small and medium size businesses. We specialize in M&A and general corporate finance advice. Our corporate finance professionals have transaction and industry experience to help businesses evaluate, navigate, and successfully execute a full range of strategic alternatives. Our clients can range from an early-stage business with break-even operations to $5 million plus of EBITDA with typical enterprise values ranging from $5 to $50 million.