2024 Guide to managing and controlling costs – Introduction

2024 Guide to managing and controlling costs – Introduction

Importance of managing costs

It is a continuous endeavor among you, the finance teams to understand the prevailing costs and find ways to control it to improve financial performance. It is one of the most important KPI for you and for your company. A better cost management exercise always yields lower expenditure and as a result better profitability. Particularly now, when the economy is in a recession, cost management and control assumes even more importance for you and your companies to ensure the bottom line is protected.

How do we go about managing costs?

Managing costs is not an activity that you alone do in your company. It is part of every process in your organization, be it a startup or a mature one that has been in existence for a long time. It starts with your planning, is part of the execution of your plan, continues in monitoring/ tracking/ analysis of every stage of your plan which then culminates in the actions/decisions taken by you and your teams based on the analysis. Now every step contributes to the cost management exercise in terms of data, analysis and decisions or actions taken. It is a continuous cycle in that the actions or decisions taken, go back into the planning phase again and the cycle continues. The faster the cycle spins with lesser friction, managing and controlling costs becomes more efficient.

1. Plan your way to success

A Football game is no fun if it is a goalless draw. The more the goals scored by the winning team, the better the win and stronger the team. Similarly in your business, the more the goals your company achieves, the stronger your company is and considered to be more efficient. But all this starts with setting those goals that your company needs to achieve as part of a plan. It needs to be comprehensive and should cover all departments and teams across your organization.

Here is the Thing! A plan is to be able to create common goals for your teams across the organization but the tricky thing is a goal is effective only when it is considered realistic, accurate and defendable and to make that happen, you need past data, not just raw data but intelligent insights based on it. These then can be used alongside current data or trends for future periods and using financial modelling techniques to arrive at a sound roadmap for success.

2. Enable smooth execution of the plan

This is the part where you and your teams suffer monotony as recording the transactions  that actually happen comes with its own challenges. It is also the most difficult and the most important step to ensure success now and for the future. In many companies, parts of the recording process or the entire process is manual. Agreed, an ERP or systems exist to solve this partially. But many of  these were built years ago and they have become legacy. They are not able to handle the issues related to the data era. Either volume, velocity or variety of data wrecks havoc and as a result data veracity or in other words, the truth behind your data is lost. With truth lost, the analytics and actions based on it are of no use. Garbage in, garbage out!

The TRUTH is .. What you need is to automate the manual processes and data engineering to help lift this heavy load off the ops and finance teams and make it easy for them to execute. They also should remove the complexity of ensuring accuracy of data and availability of this right data at the right time for analysis. Then forms the basis for proper analysis as part of the monitoring phase.

3. Monitor/ Track/ Analyze actuals costs vs plan

At any point in time, only if we measure, we can understand where we stand and initiate efforts to make it better. Anything that is not measured can never be bettered. As the execution of the plan happens, and with automation and data engineering as described above, the data that is available for monitoring and analyzing is accurate, is more meaningful. Also they are available at the right time for analysis.

Monitoring of the plan or budget against the actuals is a must. Not only that, along with monitoring, analysis of the root cause of, why a particular pattern is arising, is of great significance. This then helps us to understand the current behavior/ trend/ position. There can be two types of insights here. One, it could be a positive, in which case, further actions should be to maximize it, by extending it to other regions etc. The other could be a negative effect, in which case, insights needs to be actioned as soon as possible to stop the leaks, plug the gaps etc.

4. Control Costs by actioning the insights above

Once the Insights are arrived at, workflows should be created to enable and ensure the insights are actioned as soon as possible. This should improve the topline or ensure the bottom line is not impacted. But this  is not always the case. Many a times, analysis paralysis sets in and causes erosion of value. Speed is absolutely important but for that speed comes with trust on the insights and data to back up the insights.

Also collaboration is absolutely important as in most cases, the insights might point to actions across multiple areas of the organization. Also in all cases, the actions always needs change in plans and so this becomes a continuous cycle of improvement.

Already I am doing all of the above, STILL …

If you are doing all of the above already and still deep down you know that it is not enough. The management, the board, the investors urge you on to see what more you can do.

One thing to remember is that it is always a continuous cycle. I reiterate this again and again, as in many instances, the teams do it once and lose interest or find it difficult to continue. And it is difficult. But it is possible. Doing this for a period of time eases the pain. And more importantly, it elevates you to the next orbit. Continuous improvement ushers in continuous growth. And that too reliably.

So what can I do to overcome the PAIN?

The key step here is to improve efficiency in every step! Be it planning, execution, monitoring and analysis and during actioning the insights. In each step, identifying the tasks that is causing the most pain and figuring out a better way of doing that task should be the way to go. It could mean implementing a new application like DataTwin.ai Cost Control for doing all of the above, doing the needed integrations with your current systems to ensure data is available across the cycle, better monitoring and tracking to identify the anomalies faster and address them etc.

In this series of posts, we look at various issues that teams face across the cycle and see how we can address them at the earliest and in the most efficient manner.


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