Successful Cost Reduction Strategies in Organizations

This course will develop the participants’ skills in:

• Being aware of costs at all times
• Seeking cost reduction from the start (including life-cycle costing)
• Appraising projects / production to identify and take out risk
• Understanding real budgeting
• Using techniques such as ZBB and ABC where appropriate
• Ensuring cost reports lead to action
• Managing a cost reduction process that delivers

• Identification of cost reduction and business improvement opportunities
• Better reporting and ownership of costs
• Greater awareness and control of everyday costs

CONTENTS

Introduction – the cost management process

• • The risks of poor cost control
  • Capital and revenue costs
  • The importance of cost awareness
  • The importance of cost reduction
  • Cost management – the key aspects
  • 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

TRAINING METHODOLOGY

The training methodology combines lectures, discussions, group exercises and illustrations. Participants will gain both theoretical and practical knowledge of the topics. The emphasis is on the practical application of the topics and as a result participant will go back to the workplace with both the ability and the confidence to apply the techniques learned to their duties.