Expense Reduction and Reporting

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Expense reduction is an omnipresent and perfectly normal topic within businesses.  In the quest for improvement and gaining a better cost position companies create, promote and drive cost reduction programs.  Some of the programs are very complex and sophisticated and some are just simple plain cost reduction programs.

At first look, you might even say cost reduction is very easy…WRONG. Smart cost reduction is not easy at all, simple plain cost reduction is indeed easy.

What is the difference between the two cost reduction alternatives?

Simple plain cost reduction is easy

Simple plain cost reduction is easy, yes you are right. You just go ahead and indiscriminately reduce cost…..it is very easy. After reducing your cost you go ahead with your reporting and can brag you reduced the costs by 99%.

By doing  this kind of cost reduction you missed at least 2 critical aspects :

  • can the specific costs be reduced without jeopardizing your activity?
  • have you reduced the right costs? Did you identify all costs?
  • did you understand your cost position and cost behavior?

Smart cost reduction is difficult

Expense/cost reduction programs are driven for the reason of gaining a better competitive position for your business and for increasing your cash and profits. If the cost reduction is an answer than the question would be “can I do something to improve my cash, profits and competitive position ?”.

Smart cost reduction is difficult because of the following reasons :

  • only by understanding what your cost position and cost behavior is you can elaborate cost reduction measures and increase your companies advantages also through a better cost position.
  • cost reductions target fixed and variable costs at the same time. The way of achieving the reduction of costs for fixed costs is different from the reduction of variable costs.
  • you must understand that not every single cost is reducible, some of your costs are not reducible without jeopardizing or changing your current mode of operations

Sometimes to have cost reductions be effective you have to be ready to change/ re-engineer your processes, you have to be ready to change your organization and preferences. Cost reductions come as a “side effect” for change.

Cost reduction is a never-ending activity, it focuses on improvements in costs that influence processes or preferences that are in constant change and development.

The cost reporting is also an important part of a smart cost reduction process. You’ll use the reporting as a benchmark, as a yardstick and as a tracking tool to see what went as expected and what you still have to improve.

Don’t do cost reductions only for the sake of reductions, do smart cost reductions that build the foundation of consistent and sustainable growth.

TopCFO has a solid background in smart cost reductions that guarantee a solid and sound basis for future developments.

We look at all cost positions and processes in your business and provide a solution to get to the TOP with TopCFO. If you are interested in TOP cost reductions that FREE get in touch with us.

Let us give start a cost reduction program with you, you pay us only for results . 

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