Cost Reduction Strategies For Improving Profits

Overview

Shrinking bottom lines and declining profit margins have made it imperative for organisations to manage costs. Organisations are aggressively looking for opportunities to minimize costs without impacting the product/ service quality or market positioning. This programme offers a unique approach for managing costs by improving visibility over product cost structures and business processes. The latest concepts minimizing costs such as Activity-based costing, target costing and benchmarking will be comprehensively covered with a practical orientation. 

The objective of the programme is to enable the participants to develop skills in formulating a cost minimization strategy by applying the latest concepts. The programme also provides participants the tools for analysis of the costs across the value chain. Participants will also learn to identify ways of redesigning activities and processes to improve productivity and increase value. The programme provides a discussion of the implementation issues in applying the latest techniques for cost management and integrates a broad range of examples from both manufacturing and service sectors. Participants will also develop action plans based on the concepts presented in the class.

Benefits: 

Identification of cost reduction and business improvement opportunities 

Better reporting and ownership of costs

Greater awareness and control of everyday costs

Target Audience

All executives, and managers, whose activities impinge on cost and those responsible for managing business through the P&L.

SBU heads and team leaders responsible for bringing about improvements through cost minimization will also find the programme useful.

Course Outline

The Cost management process

The risks of poor cost control

Capital and revenue costs

How to build a cost management and control process checklist for your areas of responsibility

Cost removal – taking out costs

Cost awareness

Costs of poor design / poor processes

Value engineering

Removing redundant costs

The need for commercial, technical and financial appraisals

Understand the problems before cash is committed and costs incurred

Making the effort to identify commercial and technical risk

The time value of money – DCF techniques for long term projects

Cost models for production processes and projects

Costing models – project appraisals

The use of spreadsheets to identify sensitivity and risk

How to focus on risk management

Budgeting – proper budgeting challenges costs

The philosophy of the business – are costs an issue?

The importance of having the right culture

The need for detailed business objectives

Budgetary control measures

Designing budget reports – for action

Zero-based budgeting (ZBB) – the principles

Much more than starting with a clean sheet of paper

What ZBB can achieve

The concept of decision packages – to challenge business methods and costs

Only necessary costs should be incurred

A review of an operating budget – demonstrating what ZBB challenges and the costs it may lead to being taken out

Awareness of overheads and other costs

Definitions of cost – direct and indirect

Dealing with overheads – what is meant by allocation, absorption or apportionment?

The apparent and real problems with overheads

Different ways of dealing with overheads

Review of overhead allocation methods and accounting and reporting issues

Overheads and product costing

Activity-based costing (ABC) – the principles

Where and how the ABC approach may be helpful

Know the ‘true’ cost of a product or a project

Should you be in business? Will you stay in business?

Identifying weaknesses in a traditional overhead allocation

How ABC will help improve product or service costing

Identifying which products and activities should be developed and which abandoned

Cost reduction culture

The need for cost reports

What measures can be used to identify over-spends as early as possible

Cost control performance measures and ratios

Design of cost control reports

Reports should lead to action and deliver

Selecting cost control measures which can be acted upon

Practice in designing action reports

Course summary – developing your own cost action plan

Group and individual action plans will be prepared with a view to participants identifying their cost risks areas and the techniques which can be immediately applied to improve costing and reduce costs