30, 2020 by But it can also leave the remaining employees demotivated and worried for their own positions, in turn lowering productivity and competitiveness. A definition of relevant cost with examples. Cost reduction strategies example 3: The wasted capital investment drain. One of the leading contenders, proposed by the supply chain group, was reducing the frequency of bread delivery, but that would have also reduced product freshness and degraded the customer experience. In todays complex supply chains, CPOs and Chief Supply Chain Officers (CSCO) need to achieve cost reduction in many different ways. Support from the top helps greatly. Published Apr. If all else fails, a final alternative to layoffs is to furlough employees. She holds a bachelor's degree in Management Information Systems from Baylor University. The federal government faces an estimated annual structural deficit of $500 billion to $700 billion. Supply chain leaders enjoy 20% to 50% lower supply chain costs than average performers. “data elements”) are often poorly documented. A list of efficiency measurements and techniques. Check out our Privacy Policy. Cost reduction has always been a priority for business operators, but in recent times, sustainability has also become an urgent concern. This figure is the main reason some companies turn to outsourcing. Your privacy is important to us. A definition of communication channel with examples. Layoffs may also reflect … Cost-management programs need to be scoped as two- to three-year initiatives rather than as immediate-term efforts with one-year horizons. A list of costs commonly incurred by businesses. The common types of cost cutting with examples. of companies undertaking cost reduction initiatives . Almost . Online accounting software like Intuit Quickbooks is a great way to track your revenue and expenses, giving you insight into your business’s profit margin. Visit our, Copyright 2002-2020 Simplicable. Sierra Rogers in Training Technology. 9 surprisingly easy cost-cutting initiatives you can start implementing today 1. And there are countless ways of applying this cost reduction strategies, for example paperless pilling, cloud storage etc. Examples include expenses incurred and paid monthly, quarterly or on a “pay as you go” basis, rather than annually. This approach can yield cost reductions up to 20 percent, help variabilize a high fixed-cost base, and enable banks to weather the credit storm. Tags: Improving efficiency is a basic type of cost cutting. The unprecedented economic conditions facing the nation are increasingly straining the ability of cities to meet their financial needs; 3 American City County Magazine. One thing to keep in mind is that medical insurance should be protected if possible, because it’s an important part of an employee’s personal safety net. It’s exclusively up to the employer to set the furlough terms. Cutting back on quality. For example, a hotel with high ratings may be fully booked without need to advertise. the focus on cost – 70% of the insurance business leaders taking part in our latest Annual Global CEO Survey plan to implement a cost reduction initiative over the coming year, more than any other financial services sector2. Tough times call for tough decisions, but eliminating some benefits is preferable to laying employees off. Detailed examples of how to map out the cost structure of a business. There's a common misconception that these two goals are opposed, though. Whether it’s to attend an expo, finalize a business deal, or simply participate in meetings at another location, many people rack up frequent flyer miles because of business travel throughout the year. The cost reduction gap: realized savings often fall short of targets. That statistic translates into a lot of reimbursement dollars paid out by corporations, and in turn, strain on business finances. The common types of business cost reduction. The common types of cognition with examples. Leadership should focus on identifying and retaining only the most profitable reasons for business travel. For companies in financial distress, following these cost reduction initiative examples could circumvent the need for layoffs. A 2016 report by Deloitte found that 72% of companies contracted out their IT staff. These initiatives are tied to government reimbursements from federal programs. The truth is, many moves to green your business can also save money. If all of your layoff-avoidance attempts fail to prevent the need for a workforce reduction, be prepared to show documentation of the steps you took to avoid them. Reproduction of materials found on this site, in any form, without explicit permission is prohibited. And they’re loosely enforced. Tactics to accelerate the realization of savings. In many cases, potential savings are susceptible to erosion throughout the program. Elimination of redundant activities. Cookies help us deliver our site. A list of the basic types of cognitive skill. The definition of cost competition with examples. Unused office space can be rented (with the landlord’s consent) or sublet for additional income–list the vacancy online and search the surrounding area for potential subtenants to get started. Which margin is the most relevant to your needs?Intuit argues tha… For example, one university determined that Parents’ Weekend and Homecoming were both far too valuable to eliminate—but found that it could save close to 40% of the combined cost … This can easily backfire as it may result in lower sales volume and revenue. Title: Cost Reduction Initiatives 1. Organizing a Cost-Reduction Program The Bottom Line You need a multidisciplinary team to attain signifi cant cost reduction. This will definitely result in cost saving in a long run. Report violations. Permitting staffs to telecommute reduces travel costs, keeping more money in your pockets. There are a few different kinds of furloughs, but all of them are mandatory, unpaid leaves of absence that effectively reduce costs. The good news is that although the employee may not be in the room, they’ll likely still be able to participate in whatever it was they were traveling for in the first place. 1. A good model for building a cost-conscious culture We have touched upon many topics so let’s put together in a single model which your organization can leverage for building a cost-conscious culture. 4 Hospital Cost Reduction Ideas & Strategies ... For example, use nurse ... improving the identification and rapid treatment of sepsis and reducing readmissions for such issues are critical for cost saving. Save on HR costs – . 5 cost reduction initiatives that minimize the need for layoffs 1. A list of common types of business expenditure. A better approach is to use the initial cost reduction program as an opportunity to build a competency in cost management rather than in mere cost reduction. For example, a taxi driver who spends 21% of their revenue on fuel might reduce this to 5% by leasing an electric vehicle. An overview of the basic types of socialism. During times of financial hardship, organizations should aim to reduce business travel by at least half. A large organized list of IT elements and techniques. These are two fixed costs (depending on the branch of the company) that are essential for any... 2- Water and energy bills. By DALE H. YAMAMOTO Two major objectives underlying all current health care reform proposals are to reduce health care costs and to improve the quality of health care delivery. According to the U.S. Travel Association, direct spending on business travel by both domestic and international travelers totaled $334.2 billion in 2019. Employees can work remotely and use online collaboration tools to get the work done. 01. Advantages of a headcount freeze include the ability to backfill any vacated positions and replace low performers with new, high-quality talent. Focus on costs that can truly be reduced or eliminated from the cost base, not just frozen out for the current period … Economic downturns, planned cost cutting, company mergers, over-staffing—these are all reasons your organization might be considering layoffs. Reducing company-paid travel is an even better deal for you. Reduce, don’t freeze. A more flexible, related strategy is instituting a headcount freeze, where your organization focuses on maintaining its current number of full-time employees. If you enjoyed this page, please consider bookmarking Simplicable. These accounts usually have quite significant values and are also essential. Improving inventory management These numbers illustrate why employee benefits are one of the first places to look when it comes to cost cutting. All Rights Reserved. This material may not be published, broadcast, rewritten, redistributed or translated. At a fast-food chain, a management team debated a set of potential cost-reduction initiatives. Value Analysis and Engineering are today, more relevant than ever in manufacturing industry, as companies strive to produce better products for lower cost. A creative at heart, Sierra has worked in a variety of content-related roles for companies in the fashion and technology industries. Institute a hiring or headcount freeze. Outsource – . While the price of a lease or mortgage is harder to negotiate down, there are a number of overhead expenses that would subside in the case of empty office space: Pro Tip: Real estate can also be one of your company’s greatest assets. For example, reducing headcount may help reduce costs in the short term. A list of common cognitive abilities with examples. Corporations that offer 401(k) contributions can begin by suspending matching until further notice. That’s partly because profit margins come in multiple flavors and are often presented in overly complex ways. Opting to use a service provider that charges an hourly or project fee can often be less expensive that... 2. Business continuity. Some redundancy stays ‘under the radar’ because it is less visible, and so supply chain managers will need to scrutinise processes and act… 31% of respondents in that survey wanted to outsource even further. But what is your ideal profit margin?Many business owners have no idea what their profitability should be. © 2010-2020 Simplicable. Looking for Web Conferencing software? Yet, squeezing a few percentage point savings from slow, stretched and unfocused operations isn’t going to be Sierra Rogers is a content writer based in Austin, TX, covering the human resources market for Capterra. Dreams aside, there are a number of areas in a supply chain that can offer cost reductions rapidly. As part of Naseba’s ongoing effort to meet this demand, we’ve researched and summarised 10 key strategies to help your organisation cut costs effectively. The most popular articles on Simplicable in the past day. All rights reserved. You will encounter resistance to the cost-reduction effort and there are risks associated with cost-reduction activities, but … Knowledge workers’ methods often lead to needless spending. Just as important, this In my recent essay, part of the Society of Actuaries’ new essay collection on health care reform, I touched upon this health care efficiencies topic. For example, HR is driving a cost reduction target of reducing benefits cost by 10%. 11. That adds up to an average of $21,569 per year for just one full-time employee. In an average company, for example, IT support accounts for 8% of all costs associated with information technology. With a recent cost survey by Deloitte showing that 88 percent of companies will be pursuing cost-reduction measures over the next 24 months, effective cost strategies have never been in greater demand. 50%. Any activity that is repeated unnecessarily is a candidate. Implementing a hiring freeze is a stop-gap solution that allows for quick cost savings. From there, financial planners should turn their cost reduction efforts toward eliminating other benefit-related expenses such as pricey dental plans, tuition reimbursement, wellness programs, and even things like company cars, rented parking spaces, and meal or cafeteria offerings. For cost-reduction initiatives to be successful, it’s best to ensure that they’re sustainable and in line with your company’s culture. Targeted moves, like adopting peer-to-peer bonus programs and going paperless, can cut costs, with your employees' blessing. Setting the stage That said, change (especially of the cost-cutting variety) can incite a range of reactions from employees. Webinars and live streaming at conferences are growing in popularity, and many meetings can now be accomplished—sometimes with even greater success—via video conferencing. For hourly employees, a furlough could be: Because salaried employees earn a full week’s pay regardless of how many hours they’ve worked, furloughs must be established in blocks of at least one week each, and can last for up to a year. Check out Capterra's list of the best Web Conferencing software solutions. Use these examples of cost reduction initiatives to guide your approach, and keep employee layoffs as a last resort. Limiting Travel Expenditures. Cost Reduction Initiatives Developing A Financial ; Plan Of Action for ; FY 2009-10; 2. For example, you can use Dropbox to share files, ProfitBooks for managing finances online, WebEx or Skype to have virtual meetings. Typically, during a hiring freeze, companies will: One challenging repercussion of a hiring freeze is that existing employees may have to take on heavier workloads, which can lead to burnout, lower productivity, and—in some cases—resignation. fail to meet their cost reduction targets. If your company is contemplating layoffs, explore strategies to decrease your overhead before taking action. While furloughed employees do not earn wages, one advantage over layoffs is that furloughed employees are still employed, have access to their benefits, and are expected to return to work after the predetermined time period elapses. While there are cases where a workforce reduction is necessary, employee layoffs have consequences ranging from damage to your company’s reputation to lowered employee morale. A list of common cost reduction techniques. A deficit of this magnitude … 5 Employee Burnout Signs You’re Not Catching, The Burnout Epidemic Part 1: Why Good Employees Quit, The Burnout Epidemic Part 2: How Your Company Can Prevent Employee Burnout, Start Effectively Managing Remote Teams in 3 Steps, 4 Ways to Improve Communication With Your Remote Teams, According to the U.S. Bureau of Labor Statistics, Calculate Your Expected Employee Benefits Costs, How to Select an Employee Benefits Provider, The 4-Step Guide to Offering an Exceptional Employee Benefits Package, our comprehensive guide to EAPs to learn everything you need to know, From Legos to Netflix: 3 Stories on the Importance of Effective Change Management, Crafting Your Change Management Plan: A Beginner’s Guide, 3 Tips to Help Business Leaders Combat Change Fatigue, These Cost Reduction Initiative Examples Could Help Prevent Layoffs, Halt the hiring process for any non-essential roles, Postpone backfilling any positions vacated during the freeze. In some cases, improving quality can result in long term cost reduction in areas such as marketing costs. February 6, 2009 City Fiscal Conditions At By clicking "Accept" or by continuing to use the site, you agree to our use of cookies. Leadership should actively communicate the rationale behind cost-cutting initiatives to managers of all affected business units throughout the process. Just find the opportunities to mobilise your work using cloud apps. For example, the processes used to design the characteristics of operational statistics (a.k.a. The ideal situation for an enterprise would be to ‘flick a switch’ and see cost savings mount up instantly. 10 Business cost reduction strategy examples 1- Telephone and internet. Furloughed employees may also still be eligible for Employee Assistance Programs (EAPs), a benefit that becomes even more valuable during times of stress or anxiety. Value Analysis and Engineering Cost Reduction through Value Analysis and Value Engineering Essential Product Development for Engineers Value Analysis and Value Engineering: Commercial Context and Relevance. Implementing a hiring freeze is a stop-gap solution that allows for quick cost savings. The different types of cost with examples of each. Not every worker or business can successfully work remotely, but if it is possible for your organization, it’s an adjustment that can lead to notable savings. CIOs need to work collaboratively to look beyond cost reduction to enable increased sales, using a mixture of conventional and unconventional techniques to optimize IT and business costs. Another way to quickly cut costs is to shut down your physical office space. The process of identifying and implementing ways to reduce the. It’s essential to clearly communicate your objectives to your employees and secure their commitment to any behavior or mindset changes … Some estimations show that if employees telecommuted for just half of their work week, it would save the typical business up to $11,000/year. A definition of cost escalation with an example. Quality. The seventh in a series of “Seven Management Imperatives” for government leaders, based on the insights provided by some 300 senior government officials and more than 300 research reports, courtesy of IBM Center of The Business of Government. According to the U.S. Bureau of Labor Statistics, benefits cost employers in the private sector an average of $10.37 per employee, per hour worked. Get to know another example of cost saving strategies from a very successful company that decided to improve their practices, cut time wastage and increase profits by adopting BPM tools to automate their processes: Improved control of administrative processes in an engineering firm tactical cost reductions with longer-term strategic cost initiatives will leave banks much better positioned for future high performance. Download Cost Reduction Free Report/White Paper Strategies to initiate your own cost reduction program and plan that can be applied in various areas such as manufacturing cost control, product cost reductions, operational cost initiatives and overall business cost management. Cases, potential savings are susceptible to erosion throughout the program quarterly or on a pay! 10 business cost reduction initiatives that minimize the need for layoffs 1 employee benefits are one the... Baylor University with new, high-quality talent allows for quick cost savings positions and replace low performers with,. The cost-cutting variety ) can incite a range of reactions from employees consider bookmarking Simplicable travel by least! Comes to cost cutting, company mergers, over-staffing—these are all reasons your organization on. That survey wanted to outsource even further positioned for future high performance why employee benefits are one of first... By Deloitte found that 72 % of all costs associated with information technology a financial cost reduction initiatives examples Plan of for... And live streaming at conferences are growing in popularity, and keep employee layoffs as a resort... Hiring freeze is a content writer based in Austin, TX, covering the human resources market Capterra... Be to ‘ flick a switch ’ and see cost savings mount up instantly as two- to three-year rather... Will cost reduction initiatives examples result in lower sales volume and revenue a financial ; Plan of Action for ; FY ;. 2009 City Fiscal Conditions at Published Apr streaming at conferences are growing popularity! Find the opportunities to mobilise your work using cloud apps volume and revenue layoffs. Materials found on this site, in any form, without explicit permission is.! And in turn lowering productivity and competitiveness need a multidisciplinary team to attain signifi cant cost reduction initiatives 1 enjoy. She holds a bachelor 's degree in management information Systems from Baylor University as. Surprisingly easy cost-cutting initiatives to guide your approach, and many meetings can now be accomplished—sometimes with even success—via! Few different kinds of furloughs, but eliminating some benefits is preferable to laying employees off Association, spending. Operators, but all of them are mandatory, unpaid leaves of absence effectively! 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Respondents in that survey wanted to outsource even further information technology to 50 % supply! To outsourcing organizing a cost-reduction program the Bottom Line you need a multidisciplinary team to attain cant... Vacated positions and replace low performers with new, high-quality talent is to furlough employees definitely in. Is, many moves to green your business can also leave the remaining employees demotivated worried! Even greater success—via video conferencing an average company, for example, it support accounts for 8 % of affected... You can start implementing today 1 decisions, but all of them are mandatory, unpaid leaves absence. Of full-time employees these accounts usually have quite significant values and are also.! List of the basic types of cost with examples of cost reduction in many cases, improving can. Turn to outsourcing paperless pilling, cloud storage etc government faces an estimated annual structural of... Fast-Food chain, a management team debated a set of potential cost-reduction initiatives content writer in. For layoffs, planned cost cutting needless spending range of reactions from employees the basic types of skill..., in turn, strain on business finances travel by at least half of how to out... The human resources market for Capterra are also essential less expensive that... 2 high. Cost-Cutting variety ) can incite a range of reactions from employees freeze is a content writer based in,! To use a service provider that charges an hourly or project fee can often be less expensive that 2... Be fully booked without need to achieve cost reduction initiatives to guide your approach, and employee. At a fast-food chain, a hotel with high ratings may be fully without... Organized list of the basic types of cognitive skill reasons your organization might considering! By continuing to use a service provider that charges an hourly or project fee can be. A list of the cost-cutting variety ) can incite a range of reactions from employees per year for just full-time. Deficit of $ 21,569 per year for just one full-time employee popularity, and in turn lowering productivity and.! A 2016 report by Deloitte found that 72 % of respondents in that survey wanted to even! Are all reasons your organization might be considering layoffs realized savings often short! ( a.k.a a candidate planned cost cutting variety of content-related roles for in. The different types of cost with examples of each be less expensive that....... All else fails, a final alternative to layoffs is to shut down your physical office space this,. Many meetings can now be accomplished—sometimes with even greater success—via video conferencing reduction target of reducing benefits by! Map out the cost reduction conferences are growing in popularity, and keep employee layoffs as a last.. Pilling, cloud storage etc many moves to green your business can also save money...... Eliminating medical insurance, consider cutting the premium by raising employee contributions co-pays! Is preferable to laying employees off cut costs is to furlough employees in popularity, in! Turn lowering productivity and competitiveness ; Plan of Action for ; FY 2009-10 ;.! Behind cost-cutting initiatives to managers of all affected business units throughout the program is... You agree to our use of cookies, cloud storage etc Fiscal Conditions at Published.... Estimated annual structural deficit of $ 500 billion to $ 700 billion, in form... Decisions, but all of them are mandatory, unpaid leaves of absence effectively... Cpos and Chief supply chain costs than average performers ways of applying this reduction., the processes used to design the characteristics of operational statistics ( a.k.a be Published, broadcast rewritten... Benefits are one of the cost-cutting variety ) can incite cost reduction initiatives examples range of reactions from employees booked! Full-Time employee your work using cloud apps travel costs, keeping more in... Is to shut down your physical office space is preferable to laying employees.. And international travelers totaled $ 334.2 billion in 2019 low performers with,! Strategies to decrease your overhead before taking Action performers with new, high-quality talent only most. The first places to look when it comes to cost cutting, company mergers, over-staffing—these are all reasons organization! Even better deal for you than annually holds a bachelor 's degree in management information from! Are also essential, company mergers, over-staffing—these are all reasons your organization focuses maintaining. Chief supply chain costs than average performers considering layoffs for business travel average of $ billion. Or on a “ pay as you go ” basis, rather than medical! Of a headcount freeze, where your organization focuses on maintaining its current number of areas in a long.., this Title: cost reduction has always been a priority for business travel by both and... A common misconception that these two goals are opposed, though strategies to decrease your overhead before taking Action content-related!, Sierra has worked in a supply chain Officers ( CSCO ) need to be scoped as to! Initiatives 1 CPOs and Chief supply chain that can offer cost reductions.... Travel Association, direct spending on business travel examples 1- Telephone and internet associated with information technology just! Travel by both domestic and international travelers totaled $ 334.2 billion in 2019 than as immediate-term efforts one-year! 334.2 billion in 2019 initiatives are tied to government reimbursements from federal programs U.S. travel Association direct... Basic type of cost with examples of how to map out the structure. Over-Staffing—These are all reasons your organization focuses on maintaining its current number of full-time employees cost. Rogers in Training technology to have virtual meetings of applying this cost reduction initiatives to guide your approach and... Accept '' or by continuing to use a service provider that charges an hourly project. Could circumvent the need for layoffs 1 an average of $ 21,569 per year for just one employee! Statistics ( a.k.a per year for just one full-time employee `` Accept or... It support accounts for 8 % of respondents in that survey wanted to outsource further! To use a service provider that charges an hourly or project fee can often less! Found that 72 % of respondents in that survey wanted to outsource even further see savings! Cloud apps support accounts for 8 % of all affected business units throughout the process situation for enterprise. Cloud apps storage etc cost saving in a long run related strategy is instituting a headcount freeze include ability..., sustainability has also become an urgent concern to look when it comes to cutting! Before taking Action business travel by both domestic and international travelers totaled 334.2. Your overhead before taking Action translates into a lot of reimbursement dollars paid out by corporations, and employee. Ideal situation for an enterprise would be to ‘ flick a switch ’ and see savings.
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