How to control costs
- 1 Identify your major costs, such as staff, raw materials and other supplies, premises, utilities, travel, transport, capital expenditure and financing costs.
- 2 Decide which costs to control centrally and which should be the responsibility of individual cost centres (eg production, sales).
- 3 Involve employees by explaining what you are doing and encouraging cost-saving suggestions; consider offering incentives.
- 4 Establish cost budgets and monitor actual costs against budget as part of a systematic cost-control process.
- 5 Review how activities and costs contribute to achieving your business objectives and quality standards.
- 6 Benchmark key activities and costs to identify long-term opportunities for significant cost reductions.
- 7 Consolidate purchasing with a small number of suppliers and negotiate improved terms and discounts; check invoices for overcharging.
- 8 Eliminate unnecessary activities, duplication of effort and unnecessary waste; reduce obvious overcapacity.
- 9 Control excessive costs - for example, over-specified supplies, or always using first-class post.
- 10 Identify opportunities to improve efficiency; use technology where appropriate and consider outsourcing non-core activities.
- 11 Design products and production to use standard components and efficient processes; improve quality control to minimise waste.
- 12 Improve financial control; refinance expensive overdrafts with loans and minimise working capital.
- 13 Before making any changes, assess the potential downside, such as damaging morale, reducing quality or creating long-term vulnerability.
- set budgets and monitor actual costs
- focus on how activities and costs contribute to your objectives
- negotiate purchase prices
- involve employees
- skimp on costs that are necessary
- leave yourself without any flexibility
- fail to invest for the future