How to control costs
Checklist
- Identify your major costs, such as staff, raw materials and other supplies, premises, utilities, travel, transport, capital expenditure and financing costs.
- Decide which costs to control centrally and which should be the responsibility of individual cost centres (eg production, sales).
- Involve employees by explaining what you are doing and encouraging cost-saving suggestions; consider offering incentives.
- Establish cost budgets and monitor actual costs against budget as part of a systematic cost-control process.
- Review how activities and costs contribute to achieving your business objectives and quality standards.
- Benchmark key activities and costs to identify long-term opportunities for significant cost reductions.
- Consolidate purchasing with a small number of suppliers and negotiate improved terms and discounts; check invoices for overcharging.
- Eliminate unnecessary activities, duplication of effort and unnecessary waste; reduce obvious overcapacity.
- Control excessive costs - for example, over-specified supplies, or always using first-class post.
- Identify opportunities to improve efficiency; use technology where appropriate and consider outsourcing non-core activities.
- Design products and production to use standard components and efficient processes; improve quality control to minimise waste.
- Improve financial control; refinance expensive overdrafts with loans and minimise working capital.
- Before making any changes, assess the potential downside, such as damaging morale, reducing quality or creating long-term vulnerability.
Cardinal rules
Do:
- set budgets and monitor actual costs
- focus on how activities and costs contribute to your objectives
- negotiate purchase prices
- involve employees
Don't:
- skimp on costs that are necessary
- leave yourself without any flexibility
- fail to invest for the future
