Cost Management: An Aspect of Profit and Cash Optimization

It is clear that cost management has become a way of life for most companies. Accenture researched how companies are approaching cost management and looks at how these changes will affect the way business is done.

• Cost management has become a way of life: 81 percent of respondents had reduced their costs by more than 5 percent, while 37 percent had achieved cost reductions of more than 10 percent.
  
  
• Much work still remains to be done: 73 percent reported that cost-reduction targets had only been partially met—despite the fact that 45 percent had executed more than three rounds of cost reductions in just 18 months.
  
  
• The benefits of cost management include: reduced operating costs (74 percent), increased profitability (61 percent) and improved visibility into expenses (56 percent).
  
  
• Sixty-three percent said that cost management had helped them survive the recession.

The research showed that the top priorities for cost cutting are—in order—reducing operating costs, increasing profitability, surviving the global economic downturn, eliminating process redundancies, and fostering a culture of cost-management ownership across the enterprise. Cost cutting is focused on procurement, general management, operations and production, and human resources.

When the economy improves, most companies plan to increase spending on marketing and sales.

Eighty-four percent of companies expect to sustain some or most of their cost-management strategies, while three-quarters report that cost reductions have permanently changed the way they do business.

Given that cost management has now become a way of doing business, how can companies carry it out without jeopardizing revenue, profits and shareholder value? In other words, how can cost management be integrated in a company’s journey toward high performance? Accenture’s experience suggests that several key shifts are required. Companies should:

• Embed a culture of cost management.
  
  
• Base product prices not on the cost of inputs, but rather on the prevailing prices of finished goods. In this way, they can determine how much their inputs should cost.
  
  
• Bolster their pricing by putting robust analytical capabilities in place.
  
  
• Ramp up the extent to which they engage in scenario planning, which is critical to understanding the full range of options and market forces—and to developing contingency plans.

Contact us to find out how Accenture can help your company integrate cost management into a broader strategy to achieve high performance.