With Strategic Cost Management being at the forefront of financial organizations and all other industries, we sometimes find organizations that are still not receiving all of the benefits of their Cost Management systems. For these organizations, their challenge remains:
• What to cut
• Where to make those cuts
• Wow much to cut
The Circle of Strategic Cost Management
There are three high-level phases of Strategic Cost Management; the analysis and action phase, prediction and planning, and the measurement/modeling/monitoring phase. As the description implies, your organization should consistently be transitioning from one phase to the next. These high-level activities are dependent upon each other, which means you can’t work through these phases just one time.
Your analysis activities should lead you to action on cost takeout opportunities, and the prediction/planning activities will guide you to the transformation and performance of your organization. With measurement and monitoring activities, you should be looking at providing true cost transparency to your cost drivers, standard units and consumption. The major activities in the Strategic Cost Management Circle are:
- Analyze and Act – Efficiency improvements, identify excess capacity, root cause analysis, tactical cost reduction
- Predict & Plan – Demand planning, performance incentives, product redesign, profitability measurement, forward simulation
- Measure, Model and Monitor – Identify key cost drivers, consumption-based cost assignment, defined standard unit costs
As you can see Strategic Cost Management is much more than cost analysis and financial modeling, rather it is a strategy that provides the information you can act upon in an intelligent and predictive way.
Where Cost Management Can Fail
What can lead Cost Management Programs to fail? It is the belief of Armada Consulting that the information you receive from all the analysis, planning, modeling and predictive intelligence is only as good a the action you take. What we see in many cases is that organizations fail to bridge the gap between the Measurement, Model and Monitoring phase to the Analysis and Act phase. Failure to make that connection is like ‘smelling the char-broiled steak and never getting to taste it’. As mentioned earlier, strategic cost management is ongoing and not a one-shot deal. After you’ve measured, modeled, and monitored, the need to analyze and act again must be executed to complete the circle.
Act Upon Your Information Confidently
Implementing a well-designed strategic cost management system will mirror the organization’s life cycle as defined by its markets, products and services, human resources, and technology resources and help you understand your operations with new clarity. With accurate and valuable information, it is up to you to take intelligent action upon this information. The information is only as valuable as the action you take.
Armada Consulting develops and designs Strategic Cost Management Systems for financial services and other business organizations. To learn more about Armada Consulting and our Strategic Cost Management Programs, call us at (918) 856-3414 or request a consultation.