The overall business value achieved has to be judged at the enterprise level considering the overall satisfaction over each combination of cost, schedule, performance, and satisfaction the customer, user, and stakeholders consider important to them.
There is a need to create full transparency and business accountability in order to manage cost. This is usually not done smoothly. So the top leadership teams such as corporate boards and management teams should make an objective assessment of the business cost structure, do effective cost/performance analysis about business investment and operation, setting leading and lagging indicators accordingly to measure business results both qualitatively and quantitatively.
Cost structure optimization: The purpose of running a business is to create customers. Cost is part of business management. Cost can be categorized into operational cost, financials (budget, expenses, service costs, etc), people cost, vendor cost, etc. The challenge for management is to have visibility and traceability between costs and the assets consuming those costs. Some of the "long poles in the tent" tend to be labor; depreciation and new capital spending. When selecting the right set of metrics for cost optimization, the management needs to ask whether the metrics can reveal anything meaningful for the identified purpose, and ensure the management buy-in for the metrics collection processes, such as calculation of the cost to fix structural quality problems.
Effective cost management means understanding every island of core operation and every critical workflow process smoothly. Many organizations have little insight into their cost structures and who is consuming the assets. They have no idea where they are spending their money and often assume it is mainly being spent on items which are actually much lower on the list. Companies that lacked the skills to manage cost effectively suffered compared with competitors that had mastered those skills. Potentially a larger cost management opportunity is the transparency in sourcing decisions to allow for cost-effective sourcing strategy. Adjustments should be made to these business spending numbers by shifting the spending figures on a yearly basis after closely evaluating the key business performance metrics in a micro and macro environment to achieve cost optimization for the business.
Cost/benefit of business investment: For all critical business investments, it’s important to generate business cases and look for investments to be justified and governed on the basis of benefit delivery, return on investment and contribution to innovation. Business value is often measured by optimization and consumption of the organizational assets in support of the business solutions that are identified within the organization's revenue producing stream. Making effective investments is to drive organizational growth, besides optimizing costs. Sometimes, business management needs to shift their finance’s “mean” mindset, and act as visionary business leaders who can continue trending the industrial trends, and looking for opportunities to generate new business models, design customized products/services cost-effectively.
Making wise investment is a collaborative effort. Make sure the executive team first understands what it needs to drive future business growth and improve cash flow. Critical business spending must be looked at through an investment lens, providing a framework for thoughtful and informed investment decisions. Put the framework in place to map the strategic objectives into KPIs and then determine what capital investments will accelerate the changes you want to see and whether the growth potential is aligned with the strategic direction of your organization, and make the evaluation based on financial metrics and project future revenue. Valuation is based on financial metrics and projections for future revenues, cash flows, and income. Also, the investments need to focus on business capability and capacity development. It all boils down to building business capability and optimizing the management capacity investments with a keen eye to opportunity/cost analysis of all the business initiatives involved. It is through this comprehensive understanding that the management teams would be able to identify true cost savings, workflow optimizations, and additional revenue opportunities.
Cost/performance measurement setting and analysis: Highly effective organizations keep optimizing the organizational cost significantly to better compete in a global marketplace. The challenge is to have visibility and traceability between business costs and the assets consuming those costs. The cost optimization metrics include such as forecast benefit, benefit/cost projection, cost/structure analysis, etc. When, ask whether the metrics can reveal anything meaningful for the identified purpose, and ensure the management buy-in for the metrics collection processes and the data-based assessment helps them make effective decisions and solve right problems.
In reality, many organizations that get stagnated spend most of their resources and budget on “keeping the lights on” without building a differentiated business advantage. The structure of budget estimating for many critical business initiatives will tend to under-estimate the time and cost. Thus, setting the right metrics for doing cost/benefits analysis is important to improve organizational effectiveness and efficiency. So performance can be assessed objectively via its cost optimization and complexity management efforts. A well defined analysis, supported by a current set of metrics and a robust methodology is best viewed as a diagnostic tool. It can be seen as "switching on the headlights when driving through rough uncertain terrain in the dark." So the management can steer their organization in the strategic path and keep running business cost-effectively.
Organizations are oriented toward change and finance is all about consistency. Effective cost management is one phase of the process of effective financial management. The overall business value achieved has to be judged at the enterprise level considering the overall satisfaction over each combination of cost, schedule, performance, and satisfaction the customer, user, and stakeholders consider important to them.
Cost structure optimization: The purpose of running a business is to create customers. Cost is part of business management. Cost can be categorized into operational cost, financials (budget, expenses, service costs, etc), people cost, vendor cost, etc. The challenge for management is to have visibility and traceability between costs and the assets consuming those costs. Some of the "long poles in the tent" tend to be labor; depreciation and new capital spending. When selecting the right set of metrics for cost optimization, the management needs to ask whether the metrics can reveal anything meaningful for the identified purpose, and ensure the management buy-in for the metrics collection processes, such as calculation of the cost to fix structural quality problems.
Effective cost management means understanding every island of core operation and every critical workflow process smoothly. Many organizations have little insight into their cost structures and who is consuming the assets. They have no idea where they are spending their money and often assume it is mainly being spent on items which are actually much lower on the list. Companies that lacked the skills to manage cost effectively suffered compared with competitors that had mastered those skills. Potentially a larger cost management opportunity is the transparency in sourcing decisions to allow for cost-effective sourcing strategy. Adjustments should be made to these business spending numbers by shifting the spending figures on a yearly basis after closely evaluating the key business performance metrics in a micro and macro environment to achieve cost optimization for the business.
Cost/benefit of business investment: For all critical business investments, it’s important to generate business cases and look for investments to be justified and governed on the basis of benefit delivery, return on investment and contribution to innovation. Business value is often measured by optimization and consumption of the organizational assets in support of the business solutions that are identified within the organization's revenue producing stream. Making effective investments is to drive organizational growth, besides optimizing costs. Sometimes, business management needs to shift their finance’s “mean” mindset, and act as visionary business leaders who can continue trending the industrial trends, and looking for opportunities to generate new business models, design customized products/services cost-effectively.
Making wise investment is a collaborative effort. Make sure the executive team first understands what it needs to drive future business growth and improve cash flow. Critical business spending must be looked at through an investment lens, providing a framework for thoughtful and informed investment decisions. Put the framework in place to map the strategic objectives into KPIs and then determine what capital investments will accelerate the changes you want to see and whether the growth potential is aligned with the strategic direction of your organization, and make the evaluation based on financial metrics and project future revenue. Valuation is based on financial metrics and projections for future revenues, cash flows, and income. Also, the investments need to focus on business capability and capacity development. It all boils down to building business capability and optimizing the management capacity investments with a keen eye to opportunity/cost analysis of all the business initiatives involved. It is through this comprehensive understanding that the management teams would be able to identify true cost savings, workflow optimizations, and additional revenue opportunities.
Cost/performance measurement setting and analysis: Highly effective organizations keep optimizing the organizational cost significantly to better compete in a global marketplace. The challenge is to have visibility and traceability between business costs and the assets consuming those costs. The cost optimization metrics include such as forecast benefit, benefit/cost projection, cost/structure analysis, etc. When, ask whether the metrics can reveal anything meaningful for the identified purpose, and ensure the management buy-in for the metrics collection processes and the data-based assessment helps them make effective decisions and solve right problems.
In reality, many organizations that get stagnated spend most of their resources and budget on “keeping the lights on” without building a differentiated business advantage. The structure of budget estimating for many critical business initiatives will tend to under-estimate the time and cost. Thus, setting the right metrics for doing cost/benefits analysis is important to improve organizational effectiveness and efficiency. So performance can be assessed objectively via its cost optimization and complexity management efforts. A well defined analysis, supported by a current set of metrics and a robust methodology is best viewed as a diagnostic tool. It can be seen as "switching on the headlights when driving through rough uncertain terrain in the dark." So the management can steer their organization in the strategic path and keep running business cost-effectively.
Organizations are oriented toward change and finance is all about consistency. Effective cost management is one phase of the process of effective financial management. The overall business value achieved has to be judged at the enterprise level considering the overall satisfaction over each combination of cost, schedule, performance, and satisfaction the customer, user, and stakeholders consider important to them.
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