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The Greatest Obstacles to Strategic Cost Management

By 21st January 2015April 27th, 2022No Comments

 

Paul Millican

Posted by: Paul Millican

Back in November 2013, a survey was commissioned by Auditel to ask important questions about how businesses approach strategic cost management – the data was interesting to say the least, and gave us all a greater insight into what was happening across businesses. Fourteen months later, and the data has never been more relevant. The survey returned findings which suggested that the greatest obstacle to achieving strategic cost management was a lack of understanding. But as you may have noticed, the title of this article has obstacles, plural. After pondering over the data – as well as going from the twenty years of experience Auditel has in the field – it became clear that the other obstacle is how ill-equipped businesses are to deal with strategic cost management.

Clear Understanding Is Essential

When it comes to maintaining effective, long-term strategic cost management, it’s important to understand a few things. Of course, the simple questions need answering, such as ‘what are you planning on doing’, ‘why are you doing it’ and ‘how will it be achieved?’. But before any sort of work is started on cost management programmes, there’s one other thing which must be understood – otherwise, the entire exercise is pointless – and that’s the difference between strategic cost management and cost-cutting.

It may seem simple, but Auditel’s 2013 survey highlighted perfectly that the misunderstanding arising over what the two practices mean when compared to each other, is the biggest obstacle to effective strategic cost management.

In research conducted by KPMG, it was found that 95% of cost management measures undertaken internally fail – and costs come flooding back in as a consequence. Arguably, this is down to the fact that some businesses misunderstand cost-cutting as an effective, long-term solution, when in fact it’s a short-term, sometimes irresponsible solution, which can cause even more trouble for the business in the long run.

In contrast, a strategic cost management programme will help a business to manage costs now and far into the future, forecasting potential costs and keeping the business one step ahead.

Businesses Are Ill-Equipped

The second obstacle, as I stated before, is how ill-equipped businesses are when it comes to dealing with cost management in-house. Auditel’s 2013 survey found that 73% of respondents claimed to have measures to control costs in-house – but from experience, this is usually hampered by a lack of tools, experience or resources.

Surely, you say, keeping an eye on costs and reducing them doesn’t take any special tools? Benchmarking success, as reported by respondents to the survey, was deemed very difficult due to businesses not having a concrete in-house method. And tools for benchmarking aren’t the only resources to think about – valuable time is being used by employees right across the business, and if a programme were to fail – as KPMG’s research suggested that so many do – then not only has the money from the attempted programme been wasted, but also the time of valuable employees and the money sacrificed as they worked on cost management instead.

It is possible, however, to avoid these two obstacles and still keep a grip on your business’ bottom line. By consulting with a third party, such as Auditel, an organisation that can save you money, time and internal conflict. Only 2% of survey respondents had a successful ongoing programme developed in-house – and this will undoubtedly put them ahead of the competition. Isn’t it time you were there too?

This is an issue which needs to be resolved as soon as possible. Interested in getting your strategic cost management programme in order? Get in touch for a business health check and allow us to help.