Eight Ways For Finance To Go Further On Cost Efficiencies

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Finance has always been at the center of creating cost efficiencies. Especially when times are bad Finance is called upon to make cost reduction plans. On the back end of the pandemic, we can safely say that Finance has been working hard on cost efficiencies. It has been to the point where you would think there were no more costs to be saved. Yet, there are cost efficiencies towards the very top of the CFOs agenda for 2021. This is according to Hackett’s Key Issue study for 2021. 

How can this be? For one it is because businesses around the world are still under heavy pressure due to the pandemic. When you cannot grow or gain more revenue there are only the costs to look at. Besides that, since the environment is dynamic new opportunities to things smarter, better, and faster pop up all the time. Therefore, cost efficiencies will always be high on the CFOs agenda. Hence, we must dig deep into the toolbox of Finance to keep coming up with ways that Finance can contribute with ideas and frameworks for how to save more costs. 

In this week’s article, we will make it simple and practical for you. We will provide you with a list of eight tools/techniques you can use to identify more potential cost savings. We bet that there is at least one of them you are yet to try. So after having read this article you get to work straight away on your numbers and see how big the potential is. Then put that potential on your CFO’s table and voila you will have helped contribute the second most important point on her agenda for 2021! 

The eight ways to look for cost reductions 

There are many ways to slice and dice your numbers. Every time you look at them from a new perspective then new insights may reveal themselves. Every time you put them in front of your business stakeholders they may come up with new ideas for savings. Hence, even though the numbers do not change just because you look at them it can be a very powerful exercise. Hence, having a deep toolbox of different ways to look at the numbers can prove to be very helpful. Let us, therefore, look at eight ways you can come up with ideas for cost savings. 

• Benchmarking: This is a universal method that you can use to compare almost anything. Products, customers, business units, assets, etc. You are likely to have a dominant dimension in your company that is most often used for analysis. However, looking at some of the different dimensions will almost always yield additional insights.
• Activity-Based Costing: Most companies use some sort of activity-based costing or at least management allocations of costs to various dimensions. This obviously impacts the margins of the dimensions you look at and what you can do is to set a margin limit that you do not want any product, customer, etc. to cross then you do a deep dive.
• Target costing: Today your products have a unit cost. What if you wanted to lower that by 20% how would you do it? A good way to do it is basically to reverse-engineer your product. Take a part in pieces and see what can be done on a per-part basis. Then review the production process and see how things can be done better. Each step is an opportunity to lower your unit cost and get to the target cost – and save on overall costs.
• Total cost of ownership: What is the cost of owning vs. leasing your assets? Perhaps you think this is just accounting techniques. What does it matter if the costs show up above or below the EBITDA line? You might not see the impact in one year but over time whichever strategy you pick will impact your cost picture. Typically, it is cheaper to own if you hold the asset for its full life cycle while leasing gives you more flexibility. So, you might want to look closer at this for more cost efficiencies.
• Buying or making: How are you producing your products? Some yourself and some through suppliers. Most companies are like that but the mix between the two could hold some hidden cost savings for you. Hence, you should be running the numbers on your products at least once per year to see if market conditions have changed making it valuable to change your mix.
• Trend analyses: A lot of analyses look at costs or performance at a point in time. However, if you look at your cost performance over time as a trend it will often reveal additional insights. Often you will need to do it as a rolling average though. Can be rolling three or 12 months. Otherwise, mostly you will just see noise. Look at all your main cost accounts in this perspective and we guarantee new ideas will surface.
• Incremental: Here are a lot of smaller practical ideas that you might also be able to use: economies of scale i.e., buy more quantities to get discounts, proper procurement practices to always negotiate supplier terms, get at least three quotes, consolidating suppliers, etc., process improvements through digitalization and automation, etc.
• Radical: Re-think revenue growth or cost reductions by challenging your company to reach almost extreme targets like 25% cost reduction or 50% growth (if a larger company). This forces you to bring radical ideas into play. You can also use Zero Based Budgeting to take a blank-sheet approach to your spending and do something completely different.

There are many more ways you can work on getting cost efficiencies but hopefully, this list of eight tools and techniques will give you the inspiration to continue to deliver on the CFO's top priorities for 2021! 

From thought to action on cost-cutting 

One thing is to analyze the potential of driving further cost efficiencies, but another is taking action. Once the analysis is done it does not mean that costs will cut themselves. You need to put your analysis into play with your stakeholders. A simple yet very effective way of doing this is simply to have a workshop with your stakeholders. Share your analysis, brainstorm for ideas, discuss the best ones, and create the business case. 

This is exactly what I have done every time I have been involved in driving cost savings in various roles. I have made good use of most of the tools above and they all provided great insights. As finance professionals and business partners, we must be great facilitators of the process. We do not have to come up with all the ideas. To many, that is a relief simply knowing that. Ideas will come from your business stakeholders without a doubt if you facilitate a good process. 

Finance is ideally placed in the company to drive further cost efficiencies and today we have given you some simple and practical tools to get started. What are you currently doing to drive cost efficiencies in your company? What tools do you use to analyze the situation and what insights have you come up with? We should be confident that we can continue to deliver on these important priorities so just keep going!

If you like what you read and would like to make a voluntary donation to support my continued content creation you can use one of the below options. All content continues to be provided for free!

For international donations please transfer via PayPal here: PayPal.Me/liulindberg

For Danish donations please transfer via MobilePay on 876201

You can read previous articles in my CFO series below.

The Top 10 Priorities For CFOs In 2021

How FP&A Becomes A Strategic Partner To The Business

Agility And Sustainability And The 8 Types Of CFOs

CEO AND CFO - The Most Dynamic Duo In Business

The CFO Is The Voice Of Reason In Business

If you want to become a better business partner you should consider taking our online course "Business Partnering Explained - Value Creation Unlocked" to get a better handle on the role. It's accredited for 5.5 CPD hours.

You can read a lot more articles about FP&A, Business Partnering, and Finance Transformation below. It all start's with “Introducing The Finance Transformation Nine Box” where you set the ambition for your transformation. You should join the Finance Business Partner Forum which is part of the Business Partnering Institute's online community where we will continue to discuss this topic and you can click here to follow me on Twitter.

All Successful Business Partners Are "Leaders" (the last article in the series about our new capability model)

Should We Keep Talking About Business Partnering? (part of a 17-article series where we deep-dive on the WHY, WHAT, and HOW of business partnering by putting it on a formula)

Your Journey To Successful Business Partnering Explained

How To Create Value Through Business Partnering

Everyone Can Adopt A Business Partnering Mindset (part of a six-article series about FP&A Business Partnering)

From Business Partner To Working Within The Business (part of an article series where I interview finance professionals about their careers in FP&A and Business Partnering)

Is Your Product Optimized For Value Creation? (part of a toolbox series where we look at what tools FP&A professionals should leverage to drive value creation)

How Business Partners Turn Analysis To Insight (part of case study series where I interview business partners about how they drive value creation using real cases)

The Future Of FP&A: Two Ways To Take The Reins

What Is The Accounting Profession Paradox?

What Defines A Finance Master?

The New Career Path For Finance Professionals

How Finance People Can Be More Successful

The CFOs Roadmap To Transforming Finance

How To Become A Finance Business Partner

Financial Analyst vs. Finance Business Partner

Finance Business Partner Is A Bullshit Job

How Business Partners Keep A Plan On Track

Anders Liu-Lindberg is the co-founder, COO (Chief Operating Officer), and CMO (Chief Marketing Officer) at the Business Partnering Institute and owner of the largest group dedicated to Finance Business Partnering on LinkedIn with more than 9,000 members. I have ten years of experience as a business partner at the global transport and logistics company Maersk. I am the co-author of the book “Create Value as a Finance Business Partner” and a long-time Finance Blogger on LinkedIn with 55.000+ followers.

If you like what you read and would like to make a voluntary donation to support my continued content creation you can use one of the below options. All content continues to be provided for free!

For international donations please transfer via PayPal here: PayPal.Me/liulindberg

For Danish donations please transfer via MobilePay on 876201

You can read previous articles in my CFO series below.

The Top 10 Priorities For CFOs In 2021

Agility And Sustainability And The 8 Types Of CFOs

CEO AND CFO - The Most Dynamic Duo In Business

The CFO Is The Voice Of Reason In Business

If you want to become a better business partner you should consider taking our online course "Business Partnering Explained - Value Creation Unlocked" to get a better handle on the role. It's accredited for 5.5 CPD hours.

You can read a lot more articles about FP&A, Business Partnering, and Finance Transformation below. It all start's with “Introducing The Finance Transformation Nine Box” where you set the ambition for your transformation. You should join the Finance Business Partner Forum which is part of the Business Partnering Institute's online community where we will continue to discuss this topic and you can click here to follow me on Twitter.

All Successful Business Partners Are "Leaders" (the last article in the series about our new capability model)

Should We Keep Talking About Business Partnering? (part of a 17-article series where we deep-dive on the WHY, WHAT, and HOW of business partnering by putting it on a formula)

Your Journey To Successful Business Partnering Explained

How To Create Value Through Business Partnering

Everyone Can Adopt A Business Partnering Mindset (part of a six-article series about FP&A Business Partnering)

From Business Partner To Working Within The Business (part of an article series where I interview finance professionals about their careers in FP&A and Business Partnering)

Is Your Product Optimized For Value Creation? (part of a toolbox series where we look at what tools FP&A professionals should leverage to drive value creation)

How Business Partners Turn Analysis To Insight (part of case study series where I interview business partners about how they drive value creation using real cases)

The Future Of FP&A: Two Ways To Take The Reins

What Is The Accounting Profession Paradox?

What Defines A Finance Master?

The New Career Path For Finance Professionals

How Finance People Can Be More Successful

The CFOs Roadmap To Transforming Finance

How To Become A Finance Business Partner

Financial Analyst vs. Finance Business Partner

Finance Business Partner Is A Bullshit Job

How Business Partners Keep A Plan On Track

Anders Liu-Lindberg is the co-founder, COO (Chief Operating Officer), and CMO (Chief Marketing Officer) at the Business Partnering Institute and owner of the largest group dedicated to Finance Business Partnering on LinkedIn with more than 9,000 members. I have ten years of experience as a business partner at the global transport and logistics company Maersk. I am the co-author of the book “Create Value as a Finance Business Partner” and a long-time Finance Blogger on LinkedIn with 55.000+ followers.