Managing Costs, 3 basic approaches07 Jun 2012 | Filed under: Cost & Purchase Management
Steve Ray and Claire Power-Browne
Every organisation is bombarded by the ‘we can save you money’ message. Telephone calls – emails – newspapers – TV – Radio, in whatever direction you turn these messages are there. Some of these claims may be true for your organisation but how can these be separated from the untrue and misleading?
In truth this is extremely difficult and often leads to organisations taking a ‘leap of faith’ with the most compelling offering. This approach often only serves the purpose of ridding oneself of the guilt that doing nothing would bring. In short it can be little more than a ‘comfort blanket’.
How then to proceed?
In our opinion there are three basic options with regard to ‘managing’ expenditure.
1. Do nothing
Trust that your suppliers are always going to give you the best possible pricing and support – Highly risky and seldom, if ever, true.
2. Deal with it ‘In-House’
This option requires a great amount of resource and expertise in a wide and diverse range of areas of expenditure. How do you measure the effectiveness of the individual(s) undertaking this function?
Engage somebody who has expertise in the cost area(s) most appropriate to your needs. Always question how they get paid. If by the supplier, what is that relationship doing for both parties? If by your organisation – measure and quantify their success.
All of the above comes with the caveat that “Effective Cost Management” is about much more than just price. That said, please don’t fall into the trap of comforting yourself that by paying a higher price you are automatically receiving a better service. Suppliers (including ourselves) are good value or they are not, finding out the answer and continually reviewing it is the starting point for “Effective Cost Management”.