Manage your costs and enhance your operational performance

In a downturn, many companies suffer from 'active inertia', where management implements strategies or actions which may have resolved similar situations in the past, but which may not be appropriate in the current competitive environment.

In our experience, the most successful businesses continually review their costs, their expenditure and their product portfolio in order to remain competitive in all situations.

Defer expenditure

Often the quickest step is to freeze hiring and then to review all hiring proposals. Discretionary spending in all departments should be checked and prioritised, for example, does it make sense to launch that new advertising campaign for a marginally profitable product? Is this the time to start up a longwinded new export initiative?  All capital spending should be divided into essential and desirable. Essential capital spending initiatives should be reconsidered, for example, lease rather than buy.

Review fixed and variable costs

Vulnerability to a downturn can be reduced by lowering the break-even point – the sales volume point at which the business is profitable. Two tried and tested ways to achieve this include outsourcing and improving your strategic cost management.

Click here to find out more about Outsourcing

Click here to find out more about Strategic cost management

Review the product portfolio

How can profitability be improved? Accurate analysis of profitability requires activity-based costing. Once the low performing products have been identified, one of the easiest ways to improve profits is to prune them away, either by direct deletion or by selectively raising prices.