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Cost Reduction Management

Virtually every executive on virtually all levels and across all industries and businesses has to deal with budgeting and cost efficiencies. One would be hard-pressed to find any executive that is not attempting to reduce costs to increase profitability. However, considering the role of modern management coupled with technological development in the most recent two decades, one may wonder about the effectiveness of executive times to re-negotiate or find alternative solutions.

That being said, the sheer mention of the value of executive efforts and cost-cutting in the same sentence may make the stakeholders rather nervous. Such concerns can be easily addressed by simple cost-benefit analysis. In our experience, the outcome is virtually always the same; the cost of having high-level executives deal with cost-saving daily tasks exceeds the benefits of those cost savings.

The most suitable solution lies in outsourcing. In our experiences, we have found that a pay-per-performance model is the most beneficial approach in this particular case. Once a third party is chosen, the compensation could include a minimal base payment combined with a percentage of cost savings. Yet such an agreement requires that virtually all contracts and agreements of the given organization are up for analysis and improvement.

Ultimately, cost-saving and cost-reduction management should be vital to overall strategic management. Yet the methodology and approach to such measures require extensive cost-benefit analysis to maximize the outcome, which can benefit all stakeholders.

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