September 29, 2017

Cost Containment as recurring managerial practice

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Cost containment is a kind of approach to managing a business' financial results that has yet to be fully understood in all its potential.

Cost Containment as a Defensive Move

Cost containment is a practice that is often considered less than pleasant, especially in the Western culture, as if it were a medicine to be given sparingly and to be used in situations of suffering or crisis. It is a defensive move that no one is particularly proud of, as it runs the risk of recalling weakened states due, probably, to mistakes made in the past. In other words, if there is a need to intervene on costs it means admitting that there has been some mistake in handling the company's finances, or at least that something slipped by. The only circumstance in which we don't feel this discomfort is when external pressure imposes new austerities; complying thus becomes a necessity and we proceed more easily.

Intervening on costs only during difficult times means facing a need for financial balance that can no longer be deferred, so swiftness and efficacy are rewarded. In doing so, however, we run the risk of not being selective enough (there is no time for ulterior details or analyses) and of being hasty (what's important is the end, not the path taken to reach it). When doing things this way, cost containment projects end up acting not only on waste, but on necessary resources as well, with indiscriminate cuts that, in the long term, can turn against the company's own competitiveness.

Cost Containment as an Attack Move

Cost containment can be an attack move if it is oriented towards sustaining growth and development without resorting to additional resources that could weigh down on financial exposure or exhaust the sources of equity; in this sense it should be interpreted as a recurring managerial practice. By eliminating waste, working on the unnecessary or on what is excessive, it is possible to recoup the dormant value within the company, which could otherwise be wasted or remain inactive. It means redirecting the existing and already available resources in the best possible way, to steer them towards usage with higher added value. To do all of this, however, we must act when the company is not under pressure by urgent financial tensions, which would otherwise run the risk of creating the situation described above.

How to Attain Long-lasting Advantages

Doing Cost Management to achieve long-lasting results means approaching cost analysis from a broader and organic perspective, and resort to specific implementation rules that can maximise the ability of making the planned interventions work. If we aim to rationalise, costs must be tackled with a multi-dimensional approach that can combine multiple observation perspectives. The ability to interpret behavioural models applied by corporations, in purchasing and resource management, becomes a discriminating factor in the quest to identify the highest possible number of savings opportunities. Within this context it is always possible to measure how much to intervene on a case-by-case basis.

During implementation, then, we need expertise alongside detailed knowledge of the specific organisational contexts, so as to carry out the interventions without wasting the opportunities. To be successful we need methods and solutions that make the intervention appropriate for the internal corporate structures, overcoming habits and rigidity. Rationalization interventions must interest all corporate cost owners so they can perceive these situations as a precious opportunity for growth and learning. Benefits for the company and opportunities for the individuals involved must combine in a virtuous union.

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