5 Manage your cost base

What is the issue?

The economic downturn has forced companies to re-evaluate their relationship between cost and profits, but only a few have managed to reduce their cost base in a long-term, sustainable fashion whilst successfully maximising profitability.

What do I need to be aware of?

Businesses that successfully manage their costs only invest in those areas that are required to achieve strategic goals. They constantly plan, monitor and revise their cost strategies. The challenge lies in managing profit with the help of cost-cutting targets, without jeopardising the long-term health of the enterprise. In the economic downturn the emphasis must be on:

  • Enhancing operational performance and driving profits through improving efficiency and driving out waste
  • Improving planning and execution
  • Stemming value leakage
  • Simplifying and improving end to end business processes
  • Improving the overall cost control environment and creating a cost culture.

What questions should I be asking myself?

Cost of supply:

  • Is the business making and buying the right things?
  • Am I making the most of competitive advantages in procurement?
  • Is the company eliminating waste?
  • Are operations completely aligned with the end consumer?
  • Can we improve procurement techniques?

Value creation:

  • Does management understand exactly where value is being created or destroyed?
  • Is there a direct attribution of cost to products? What is the true net product profitability?
  • What profits are my activities generating and where am I wasting money?

Corporate structures:

  • Is the company organised to be able to supply the customer at lowest cost?
  • How much is spent on business support? Is this appropriate?
  • Which overheads create true value and which just generate indirect costs?
  • Would it be cost-effective to outsource transactional activities to shared service centres?

Managing people costs:

  • Are my people in the right place at the right time to maximise profit and minimise waste?

Cost culture:

  • How can I avoid non-value-added costs and keep them out?
  • Are business processes and practices aligned to keeping costs out?

How can PwC help?

Drawing upon a network of expertise and the experience of our professionals, we can help you manage costs and reduce complexity whilst ensuring the benefits are sustainable over the longer term. Check the column on the right for details of who to contact and for further information.