COST REDUCTION STRATEGIES FOR IMPROVING PROFITS

Overview
Shrinking bottom lines and declining profit margins have made it imperative for organisations to manage costs. Organisations are aggressively looking for opportunities to minimize costs without impacting the product/ service quality or market positioning. This programme offers a unique approach for managing costs by improving visibility over product cost structures and business processes. The latest concepts minimizing costs such as Activity-based costing, target costing and benchmarking will be comprehensively covered with a practical orientation.

The objective of the programme is to enable the participants to develop skills in formulating a cost minimization strategy by applying the latest concepts. The programme also provides participants the tools for analysis of the costs across the value chain. Participants will also learn to identify ways of redesigning activities and processes to improve productivity and increase value. The programme provides a discussion of the implementation issues in applying the latest techniques for cost management and integrates a broad range of examples from both manufacturing and service sectors. Participants will also develop action plans based on the concepts presented in the class.

Benefits:

• Identification of cost reduction and business improvement opportunities
• Better reporting and ownership of costs
• Greater awareness and control of everyday costs

Course Outline:

1. The Cost management process
   • The risks of poor cost control
   • Capital and revenue costs
   • How to build a cost management and control process checklist for your areas of responsibility
2. Cost removal – taking out costs
   • Cost awareness
   • Costs of poor design / poor processes
   • Value engineering
   • Removing redundant costs
3. The need for commercial, technical and financial appraisals
   • Understand the problems before cash is committed and costs incurred
   • Making the effort to identify commercial and technical risk
   • The time value of money – DCF techniques for long term projects
   • Cost models for production processes and projects
   • Costing models – project appraisals
   • The use of spreadsheets to identify sensitivity and risk
   • How to focus on risk management
4. Budgeting – proper budgeting challenges costs
   • The philosophy of the business – are costs an issue?
   • The importance of having the right culture
   • The need for detailed business objectives
   • Budgetary control measures
   • Designing budget reports – for action
5. Zero-based budgeting (ZBB) – the principles
   • Much more than starting with a clean sheet of paper
   • What ZBB can achieve
   • The concept of decision packages – to challenge business methods and costs
   • Only necessary costs should be incurred
   • A review of an operating budget – demonstrating what ZBB challenges and the costs it may lead to being taken out
6. Awareness of overheads and other costs
   • Definitions of cost – direct and indirect
   • Dealing with overheads – what is meant by allocation, absorption or apportionment?
   • The apparent and real problems with overheads
   • Different ways of dealing with overheads
   • Review of overhead allocation methods and accounting and reporting issues
7. Overheads and product costing
   • Activity-based costing (ABC) – the principles
   • Where and how the ABC approach may be helpful
   • Know the ‘true’ cost of a product or a project
   • Should you be in business? Will you stay in business?
   • Identifying weaknesses in a traditional overhead allocation
   • How ABC will help improve product or service costing
   • Identifying which products and activities should be developed and which abandoned
8. Cost reduction culture
   • The need for cost reports
   • What measures can be used to identify over-spends as early as possible
   • Cost control performance measures and ratios
9. Design of cost control reports
   • Reports should lead to action and deliver
   • Selecting cost control measures which can be acted upon
   • Practice in designing action reports
10. Course summary – developing your own cost action plan
    • Group and individual action plans will be prepared with a view to participants identifying their cost risks areas and the techniques which can be immediately applied to improve costing and reduce costs