Corporate Cost Control Strategies

To be profitable, companies must not only earn revenues, but also control costs. If costs are too high, profit margins will be too low, making it difficult for a company to succeed against its competitors. In the case of a public company, if costs are too high, the company’s may find that its share price is depressed and that it is difficult to attract investors. This report focuses on the corporate cost control strategies and tries to fulfill a few objectives such as * Why it is needed?

* What it deals with?
* What are the various strategies?
* Why Human Capital cost is the most important cost and how it should be controlled? * How it should be implemented?

Cost Management and Profit Maximization:
The key to control cost is to maximize profits. The first need is to understand the management style. Financial analysis is critical in making such decisions. But, there is a need to act with integrity and don’t be short-sighted or cut corner, it will come back to haunt you. Communication between various units and key constituents internally and externally is vital. Company must identify its pain points and inefficiencies to curb on various useless costs. A want v/s need analysis based on current expense and past data of expenses can help corporates in better cost management. Understanding types of Costs:

Identify what type of cost a company need to control. The various kinds of costs could be: Fixed v/s. Variable Costs, Debt-service costs, Infrastructure and Systems Costs, Human Capital Costs like Salaries, Benefits, Healthcare costs etc., Advertising and Promotional Costs, Overhead and Administrative Costs, Research and Development Costs. The type of cost you are trying to manage will dictate the strategy. Cost Control Techniques:

These can be broadly classified in following categories:
Relationship-Driven Cost Management Techniques| Financial and Management-Driven Cost Management Techniques| Market-Driven Cost Management Techniques| * Managing Vendor and Customer Relationships * Outsourcing IT applications (ex. Network Alliance), benefits, sales financial management, etc. * Cooperatives for purchasing, advertising, etc. (including trade associations) * Joint Ventures and strategic alliances * Employee incentives and rewards for cost-cutting| * Bootstrapping * Cash flow management * Managing employee retention and turnover costs * Budgeting, planning, forecasting * Estimates and price quotes * Corporate restructuring, recapitalization and reorganization| * Competitive bidding and RFP’s for vendor needs * Grassroots and guerilla sales and marketing techniques * PR vs. Advertising Costs * Customer referral, retention and loyalty systems (80/20 rule of costs of getting new customers) * Barter networks| Human Capital Costs:

One of the most important resources is the human resource and this needs to be managed properly to ensure better cost controlling. Low productivity and high turnover cost employers two to three times more than insurance premiums and medical claims. A new paradigm for managing human capital costs can reduce these “indirect” expenses to benefit both employer and employee. There can be various ways to control these costs as Outsourcing payroll processing, Telecommuting and virtual offices, Professional employer organizations etc. Methods to implement:

There are various methods. A few are mentioned below:
1. Build and embrace a dashboard and reporting system which will help you monitor and measure key metrics. 2. Consider third-party cost management services who work on a contingent basis (ex. PRS). 3. Build an expense-control culture which recognizes and rewards employees (and others) who figure out ways to control costs and improve profitability. 4. Closely examine each category of your expenses and ask: a. Do we really need to incur this cost?

b. Is there an alternative and more efficient source or solution available? c. How will a reduction in this particular category of cost (or change in our approach) affect our other operations or successes to date? 5. Understand the direct and indirect impact of your cost-cutting strategies on your culture and the fabric and values of your company – the key to this process is to cut fat without cutting into muscle or bone. 6. Act with integrity and maintain communication possible at each level to build long term relationship. Keep in mind the long term benefits. 7. Benchmarking is key … know the typical ratios within your industry and manage accordingly. 8. Changing bad habits and empowering and rewarding the right behaviors with a focus on profitability are the key – there must be an educational component to the implementation of the cost-management plan. 9. Profitability-improvement programs do not always need to be focused on reducing costs. There should also be an effort to develop higher-margin revenue streams.

Conclusions:
The effective implementation of a cost control strategies takes planning and time. It should be seen as a continuous process and one that will need on going attention. Instead of blindly trying to cut costs in the face of a crisis, it is recommended that managers embrace cost cutting as a strategic issue and approach the task from a supply chain and marketing perspective.