Creating A Business Case For Cost Management

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Thanks for your comments on my cost management advice. I’m encouraged that several of you are thinking the same way about moving beyond this year, and in agreement that we are all thinking about things, and making changes, that we should have prior to this year.

It’s rare that I do work without a business case, creating a compelling case for change. As I mentioned last week, many “quick wins” can come without much investment. But larger, more sustainable cost improvement usually comes with some investment attached. For example, reducing Supply Chain cost through vendor consolidation may require changes to technology and three months of work to enable.

The case for change revolves around three concepts:

  1. What benefits (cost reduction) can I create?
  2. What do I have to spend to create them?
  3. When will they be created?

You can see why quick wins are attractive: they can be easily demonstrated, require little to create and can be realized within months – but they only occur once. Sustainable wins on the other hand (e.g. reduction of inventory shortfalls) occur every year but they usually require investment in people, process and technology. This creates a dilemma for the business leader: do I spend $50,000 now in order to save $200,000 over the next 3 years? That’s why we try to make the business case compelling, performing analysis that demonstrates the “size of the prize”, the effort to achieve and the timing. Not only does it need to make financial sense, it is not uncommon for a business leader to balk at moving forward, not because the ROI isn’t there, but because of unwillingness to tackle the organizational change required to achieve. Many business leaders dread the organizational change effort, and related risk, but this is a challenge commonly encountered when you are trying to create significant savings (think Transformation from my column here.)

As always, let us know if we can assist

COVID LOAN UPDATE

There’s not much to report in terms of stimulus loans, other than to say there are still about $130 billion in PPP funds available; you have until August 8th to apply. The $600 billion Main Street program has been somewhat of a failure; only about 300 banks have registered as participants. Main Street is targeted at companies with less than $5 billion in revenue and fewer than 15,000 employees. As it looks like COVID will have an impact on our businesses for a while, look for changes that make the Main Street program more attractive.