COST CUTTING – THE WAY FORWARD
Cost is meant to be
incurred to create / add
value but of ten bus inesses
incur cost that adds no or
l i t t le va lue. Ident ify
opt ional and unwanted
costs and at tack them
N.Balajhi - Independent Business Consultant
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Cost Cutting – The way forward
Cost is something that a business must incur to create and del iv er value for i ts
customers. Howev er i t is far f rom the real i ty. Businesses do incur costs that do not
create v alue or costs that add l i t t le v alue to i ts customers. 'So what 's the big fuss?
Just remov e costs that add no v alue and your job is ov er ' . wel l i t 's not as simple and
easy as that . Each cost , rather each expense i tem that f igures in the f inancial
statements of a company conceals both 'wanted' and 'u nwanted' costs. Chaf f should
be careful ly separated f rom wheat as otherwise wheat could be mistakenly thrown out .
Operat ional issues and problems (OIPs), a business v i rus, cause unwanted costs and
to ward of f against this v i rus a company needs to take a sy stemat ic approach that may
requi re changes at v ar ious lev els and things, in -depth t raining and a change in
at t i tude. OIPs and guarding against them is a big topic and could f i l l many blog posts.
But for the moment we wi l l f ocus on a f ramework to ident i f y a nd reduce 'unwanted
cost ' .
If you are on a cost cut t ing mission then
I would recommend you to consider the
fol lowing approach to cost reduct ion.
We can classi f y costs (not in the cost
account ing way)
four di f ferent
categories v iz. , essent ial , necessary,
opt ional and unwanted costs.
Essential costs are those that are
incurred to create and del iv er value for
customers. I f by any chance these costs
are reduced then a company wi l l be
compromising on the v alue that