in categories: cost reduction
Paul Wilson discusses how making intelligent cost saving decisions can save organisations money without sacrificing front line services.
Sir Bob Kerslake, former Head of the Civil Service, has recently warned that Britain's public sector cuts are far from over, in fact he has even predicted that the cuts could go on for as long as another five years. He explains how it will become increasingly more difficult in the coming years for three key reasons:
- The easy savings have already been made
- It is likely the cuts will be made in a growing economy with greater competition for good staff
- The urgency that underpinned the first savings programme will be reduced
In my experience his message is absolutely correct. To date, many of the cuts have been the easy to get low hanging fruit. The really skilful part that is now required is to save money without degrading front line services even further. The cost reduction must now focus on the systems that leak value to the detriment of the organisation. There are 3 things you can do to an organisation:
- Change the way it is structured
- Change the goods or services provided
- Change the way it operates
Unfortunately too many organisations believe that reducing staff numbers alone will achieve the savings necessary, but that is not enough. You must understand how the cost base contributes or detracts the "capability" of the organisation. Do you know the difference between your accounting costs and your capability costs? How much does it cost to perform a surgical procedure (the training, the premises, the IT, the equipment, the systems that must be followed, the overheads, the logistics/consumables and then the people)? It is very easy to lose people and it is tough to understand the rest. Tough but achievable.
Our experience of running intelligent cost saving programmes shows that the key starting point is always understanding what is the outcome or capability that you want to maintain. Then aim to truly understand the capability costs and then determine what can go without affecting capability. One thing that is certain, when you understand the capability costs, you would not make the same decisions. This is a vitally important topic to the public and private sector and deserves more attention.
For more information of intelligent cost reduction programme please go to: http://www.provelio.com/Services/cost-reduction
by Paul Wilson
Managing Director at Provelio
| 10/11/2014 08:22 |comments powered by Disqus