Conducting a cost optimization approach is virtuous. However, the latter may be in vain if the project fails before or during implementation or if the savings evaporate afterwards. Some tips to overcome the risks on the way to cost optimization.
More than three quarters of optimization projects never reach their initial goals. Between the decision to launch and the concrete recovery of savings, many risks threaten the project. The identification of risks, as well as their treatment make it possible either not to consume resources unnecessarily by not launching certain projects, or to considerably increase the chances of success. The list of these risks is long, so here is a focus on 6 risks encountered regularly.
Obstacle n ° 1: Presence of obstacles from the start
One of the main risks is already simply not being able to start the cost reduction campaign. There may be many reasons for this: too much dependence on a supplier, perception of insufficient savings potential, fear of internal impacts, lack of time, and sometimes even a combination of these factors.
Take the case of the apparent lack of potential with dependence on suppliers. Beyond objective dependence, there is also very often a subjective or emotional dependence: “we have been working with him for a long time” or “he knows how to be accommodating”,…. everything that the supplier can do very well to make himself unique and indispensable! We must therefore be able to overcome subjective dependence. For this, we can rely on a benchmark, a comparison of the prices of the differentproviderson the market. The provider may be favored but remaining within market prices.
Obstacle n ° 2: Poor framing of the project
An insufficiently precise project scope and responsibilities can generate strong misunderstandings or even resistance. This resistance can come from a site manager or an operational. Most of the time, they come from the fact that this person has a bad perception of the project. However, the project will be difficult to carry out without the support and involvement of this person. To succeed in generating this commitment from everyone to the project, it is important to establish internal communication, as early as possible, to inform all contributors about the project, their role and their contribution. The framing of the project is necessary for clear and effective communication.
3 ways to structure a project
Three components will make it possible to frame a cost reduction project: first, the very definition of the project (issues, objectives, planning, roles and responsibilities), second what can be challenged and what can only be challenged with more difficulty (for this it is necessary to carry out a detailed analysis of the budget lines, to audit and to know how to exclude certain perimeters) and third, to validate that other initiatives will not call the project into question.
If the project is threatened by other priority internal projects, then perhaps the start of the project should be questioned. These priority conflicts can be generated by the implementation of a new ERP, a new regulatory constraint, a move… They should be anticipated!
Obstacle n ° 3: Choice of resources
Some categories of expenses require less expertise than others. For example, the purchase of office supplies does not require special knowledge of the legislation, or of the technical specifications of the products, moreover there is easy access to service providers, even urgent requests, supported by numerous catalogs and gifts! That said, it must be recognized that even in these categories requiring little expertise, a good knowledge of these purchases makes it possible to go even further by knowing the price levels that can be achieved by improving processes or redefining the need.
For many other categories of expenditure a solid level of knowledge and experience is required. It may be a question of knowing how to analyze possible insurance coverage failures, or of having a complete vision of the costs for the vehicle fleet (by integrating, for example, the weight and constraints of taxation).
More generally, the errors often encountered in a company are among the following: inaccuracies, even dead ends on operational or even legal aspects or the failure to take into account hidden costs. This involves, for example, having neglected in the analysis the penalties for breach of contract, the possible costs of taking back the equipment. The lack of questioning of the existing (this questioning is not necessarily necessary but it is sometimes the main way or the only possible way for significant optimizations). Or, supplier casting errors (for example choosing a supplier with a heavy structure when you need reactivity).
The skills to have
To optimize purchases, it is necessary to master multidisciplinary skills. It is necessary to combine technical knowledge on the services or products in question, knowledge of the procedures in place in the company, knowledge of supplier markets for each product or service and the ability to manage a project and bring it to fruition. Beyond the issue of competence, availability is fundamental. Renegotiating a contract or doing a quarterly follow-up doesn’t take 15 minutes!
Obstacle n ° 4: Internal cohesion difficulties
Cohesion difficulties can arise from fairly common situations in the company. We can cite conflicts between people, the existence of partitions between departments, conflicts of interest between different profit centers, between operational and financial and finally operational objectives that are poorly aligned with the general objectives of the company. For example, it may be a site manager who wishes to keep control of a maintenance service while the company wishes to reduce the number of service providers to save management costs. These situations can lead to the withholding of information or the taking of parallel initiatives such as the launch of a call for tenders, or even a re-engagement over several years.
Communicate for better savings
To overcome these problems, a good internal communication is essential for the launch of the cost optimization project and throughout this project. This communication must continue until the results are obtained, obviously with appropriate frequency and content. It must be ascending and descending, from the project to the direction and vice versa.
Another very interesting approach, the identification of “quick wins” (short-term objectives), makes it possible to demonstrate that results can be obtained and which, in fact, strongly reinforces the adhesion to the project. These quick wins are often obtained on projects that are not very complex, generate little internal impact and can be implemented quickly.
Be careful, however, to choose the budget lines concerned and make sure that there is significant potential upstream, because while good results can generate stronger support, bad results can generate strong resistance.
Obstacle 5: Failure during implementation
Implementation is the transition from theory to concrete action, the transition from supplier commitments to the performance of the service, or even the implementation of a new expenditure policy. During this phase, we often observe the appearance of difficulties, the causes of which may first of all be an insufficient analysis of the situation. For some operational staff, the budgetary vision may be insufficiently precise or even misleading. The accounting vision can also be a source of errors if the operator does not have a complete vision of all the legal structures concerned. The precision of the specifications is also important. For example, the wording “sending sensitive documents” can mean sending contracts but also meal vouchers which require a much more secure process.
Another cause of these difficulties can be an accompaniment of failing change. A cost optimization project can lead to changes impacting the organization. It is important to involve the actors concerned from the preliminary stages and to have communicated sufficiently upstream.
Plan a plan B
Finally, the implementation may be faulty because of services that do not comply with the expected. This difficulty can be circumvented by setting up a testing phase in order to be able to control thequality. If the commitment with the service provider is already effective, we can in this case set up a corrective action plan so that it improves its service in line with the specifications. Having planned a plan B may be beneficial as a last resort, but this plan must be built upstream of the change.
In any case, only make the change if there are significant gains in financial, organizational and / or quality terms. In more than 70% of our optimization projects, the optimizations are acquired while maintaining the service provider in place.
Obstacle n ° 6: failure to measure the savings achieved
Once the implementation of cost reduction actions is effective, it is advisable to switch to control mode to ensure that savings are made. In order to avoid perceptions such as “It always costs so much!” »It is important to clearly define and measure the savings achieved. For this, it is necessary to have built upstream a reference system in the form of a cost schedule, a calculation rule or a combination of the two. This reference system should then make it possible to measure the savings with the information that will be available. This system must also take into account future events in order to remain as reliable as possible over time. In particular, it should make it possible to manage variations in volumes, changes in scope and changes in uses and consumption.
Control the services
Ensuring the reality of savings and their sustainability also means detecting or even anticipating slippages in order to be able to take corrective measures. In particular, in the context of transport cases with several service providers, this may involve reaffirming the rules for choosing the appropriate transport service or even communicating to operational staff or their management the observed deviations and their financial impact. For that, it is important to follow and to control at a sufficiently short frequency so as not to let the drifts set in.
Despite these monitoring and measurement efforts, it often happens that savings are hardly visible in the company’s income statements. Indeed, the income statements were not necessarily designed to restore savings. It is not always easy to identify volume or price effects. In telecoms in particular, strong variations in volumes as well as changes in usage often mask the savings generated: “it’s still so expensive! “” Yes, but it would have been much more if the costs had not been challenged! In addition, certain expenses change accounting item or even break down in different ways. Dedicated, frequent monitoring based on a “calculable” system is therefore necessary in order to identify drifts and correct them, all with the aim of ensuring the sustainability of savings.