Cost Management : Management Today Survey
While chief executives and finance directors often talk about managing costs strategically, our research suggests that both organisational politics and a lack of understanding among employees can act as significant barriers to effective implementation.
Cost Management Goals
Almost half of respondents consider efficiency improvements and effectiveness to be the point of cost management measures. Almost a quarter view them as a means to simply ensuring financial survival. However, a third consider cost management measures in more positive terms, stating that for them, the main purpose is to accelerate performance or gain a competitive advantage over their rivals.
Travel, transport and logistics have been the most common areas of focus for previous cost management efforts, followed by human resources – an area of concentration for half of our survey respondents. Telecoms – fixed and mobile – are the next most likely area to come under cost management scrutiny.
However, it’s managing the cost of human resources that respondents say is the biggest challenge facing their organisations. Property and premises costs are not far behind, with travel, transport, logistics and IT infrastructure also considered significant cost management challenges.
Given the recession, it’s not surprising that talk of cost management has been common everywhere in the organisational hierarchy. It’s on the boardroom agenda of 82% of respondents, and discussed on the shopfloor of 53% of businesses.
But how directed is that talk? Only 30% of survey respondents were able, in their opinion, to describe the cost management measures in their organisations as very strategic.
When respondents were asked to name the main approach to cost management at their organisation, by far the most common answer was identifying wastage and efficiency improvements. Streamlining the organisation is the second most popular approach, followed by process improvements.
However, it seems that organisations have experience of using a variety of cost management methods, from researching suppliers and benchmarking current expenditure to competitive tendering and service level agreements.
Cost Management Champions
More than two thirds of respondents (67%) say they are engaged in a cost management programme. In 60% of organisations, it’s the CEO who champions cost management – alongside the FD (41%) or financial controller (28%). Rather worryingly, 6% of respondents said no one was championing cost management in their organisations.
In 73% of companies, cost management measures are undertaken in-house. However, 23% of organisations use external resources to implement measures.
Lack of understanding is, say respondents, the biggest obstacle to cost management in their organisations. But an almost similar proportion admits that organisational politics hampers efforts to bring costs under better control. Close to one in five respondents point the finger at unrealistic goals as the biggest barrier.
A third of respondents say they would seek the advice of a specialist consultant when considering more strategic cost management. Just over 28% would ask a management consulting firm, while the same percentage would seek the services of an accounting firm.