8 Tips to Effective Cost Management

8 Tips to Effective Cost Management

8 Tips to Effective Cost Management
 8 Tips to Effective Cost Management

"Comfort" is a word that can cost a business millions.  When we seek comfort, we are unconsciously seeking complacency. Drawing valuable lessons from my talented friends at Yes Theory, we must constantly seek discomfort to avoid the black hole of complacency. Here are some effective tips to avoid the laissez faire ("chalta hai") attitude: 

Be proactive, not reactive  

A proactive approach focuses on eliminating problems before they have a chance to appear and a reactive approach is based on responding to events after they have happened. The difference between these two approaches is the perspective each one provides in assessing actions and events, preparation and accountability. 

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Proactive managers focus their efforts and attention on risk mitigation strategies - when a problem arises, the team is prepared and protocol is followed. On the other hand reactive managers succumb to believing that they will save costs by dealing with problems as they come. When such an instance does come along, operations get derailed, the team scrambles, tasks get delayed and the business has to incur large unexpected expenses. Even with a great team, they will neither have the time nor the opportunity to explore all potential solutions. Eventually it becomes a lot more expensive to look back and rework vs. having a plan in place to proactively tackle situations.

Simple ways to be proactive:
  • Build a foundation for success in your cost estimate - The more detailed and precise the estimates, the better management will be able to predict and respond to events during operations, minimising surprises.
  • Monitor and manage cost %s and variances - A dedicated tracking tool that compares the expected outcome to the actual outcome and cost performance will give visibility and transparency into things that could potentially go wrong
  • Daily meetings and updates - Empower your team with relevant information (targets, goals, performance reviews) to help them succeed

Implement Reporting Structures 

Reports are the most efficient method of communication when it comes to understanding how a business is performing. They provide important details that develop future forecasts, create sales and marketing plans, guide budgets and improve decision-making. Their versatility allows management to track progress and growth, identify trends and any irregularities that may need further investigation. 

While numbers presented in the reports are important, it is equally (if not more) important to have SOPs in place to collect accurate data. Implementing standardised methods of gathering data will mitigate the risk of collecting bad data and maintain its integrity.

Use Simple but Dedicated Tools  

It's a misconception when executives think that a strong software will solve all reporting issues. If the team is being managed properly and understands the value of the software, they will be able to input valuable information. A tool is merely a tool without properly trained individuals who know how to use it and what information is needed as an input and output, the tool is useless.
It's unfortunate to see the number of costing, inventory management and project management tools that come to market and don't end up being used due to their complexities. Spreadsheets continue to be the most widely used tool for cost analysis and management needs. While MS Excel does have its advantages such as it's ready availability and ease to start off with, MS Excel falls short while managing a dedicated discipline such as cost management. Some of the challenges with MS Excel include that it's completely offline, difficult to manage advanced functionality, lack of control & restrictions and is often created by individuals who have limited IT expertise as a quick and cheap solution.

On the other hand, Google Sheets is a great balance of a software and a spreadsheet. It has a front-end that functions like MS Excel while it’s back-end functions as a software. Google sheets allows for:
  • Collaboration - edit a spreadsheet live with other colleagues using it as well
  • Working at scale - use upto 5 million cells per workbook
  • Link between applications - link spreadsheets to other G Suite applications like slides to provide visualisations
  • Version control - refer to an audit trail
  • Permission control - limit access of selected accounts
  • File management - link sheets from different files
  • Plugins and integrations - choose from a wide range of business tools to upgrade your spreadsheet
  • Scripts - use advanced coding to function as a software

Communicate effectively and make members accountable  

Smooth and efficient functioning of a business depends upon the effectiveness of the system of communication. It is the very heart of the process of organising. It provides the necessary basis of direction and leadership. It actuates people to action in accordance with the desires of the management. A lack of communication can ultimately lead to low morale as it creates misunderstandings, missed opportunities, conflict, the dissemination of misinformation and mistrust, employees might just feel overall defeated. It is essential to secure cooperation between individuals, teams and management. There’s broad consensus that the 1:1 meeting is one of, if not the, most important meeting you can have. But what exactly can you accomplish through 1:1 meetings? We found that the most successful 1:1s aim to facilitate the following things: 
  • Building a trusting relationship
  • Staying informed and aligned
  • Providing mutual feedback to help each other grow
  • Addressing topics prone to getting lost in the shuffle (e.g., career development)
Once there is effective communication, make people accountable. Building a culture of accountability in the workplace requires clarity and alignment around desired results. Leadership teams should identify the top three to five key results that the organisation must achieve in order to be considered successful. Key results must be meaningful, memorable, and measurable, and communicated clearly and consistently to every employee within the organisation through a top-down approach.
When employees have clear targets toward which to work, they are able to see the connection between their day-to-day tasks and the organisation’s success. As such, they are inclined to take accountability for delivering on the key results. Accountable teams see it, own it, solve it, do it; they see the problems hindering reaching the company's goals, own their role in accomplishing key results, solve existing problems through creative problem-solving, and do what they say they are going to do by delivering on results.

Be a leader - People Management  

Leaders and their leadership skills play an important role in the growth of any organisation. Leadership refers to the process of influencing the behaviour of people in a manner that they strive willingly and enthusiastically towards the achievement of group objectives. It's not all about crunching numbers. A manager is considered a leader who guides the team towards success by working together, encouraging ideas and boosting morale.  Failing to properly manage team members or micromanaging them, can lead to delays, impact quality and result in cost increases. Team members are the people most in touch with the challenges, risks and issues likely to impact an organisation. 

Thus, project managers should: 
  • Make sure the team understands their roles and responsibilities
  • Celebrate the big and small successes or any extra efforts that contribute to advancing the team’s mission
  • Develop a performance review system as part of the management
  • Ensure that performance is measured, reviewed and recognised

Embrace Fear and Adapt to Change  

There are typically two types of fears; fear of failure and fear of change.    
Every project manager should know that, sometimes, despite their best efforts, things go wrong or the project fails. Sometimes, due to a fear of failure, project managers try to salvage a failed project and this could lead to radical decisions causing more damage and costs than needed. Instead they should take a step back and re analyse their position and adjust where necessary.   

This is why it is important to have a system or tool that creates transparency and truthful reporting.   Yet despite this knowledge, there are many managers who also fear change or refuse to make changes to the way they are used to doing things. When something is not working, something needs to change. As Thomas Jefferson said, “if you want something you never had, then you got to do something you have never done.” 

There is also a resistance to changing technology. There are many who believe that changing will just cause more work, more risks, more cost. This may sometimes be true initially but one must evaluate the long-term results as well. If something is not working or a process / technology is not at the level it should be (in this fast paced world) not adjusting and making the necessary changes can lead to terrible results.    As Bill Gates would put it, “The people who resist change will be confronted by the growing number of people who see that better ways are available; thanks to technology.”

Embrace Feedback and Be Open Minded  

When we receive feedback, it’s hard for us to feel like we’re wrong, and it’s even harder for us to hear that from others. Our brains view criticism as a threat to our survival.   Make sure you invite feedback often, especially from those you trust. You’ll be better able to see any challenges ahead of time, and you’ll gain experience in responding positively to feedback.  When receiving feedback, it might be tempting to become defensive or “explain away” the criticism. Instead, let the other person finish completely and try to listen deeply. Then ask questions and reflect thoughtfully on what you’ve heard.

Constantly Improve - Training  

Knowledge is Power. The more we learn, the more we are capable of solving issues and being open to solutions. Yet we always seem to be “too busy” for learning, attending seminars, networking, webinars, or even reading about what’s new in the market.    Our past experience can only take us so far if we are not open to the new and what future generations have to say. We just can’t be closed-minded in this fast-paced world anymore.  Whether it be for jobs or just personal growth, adding value to oneself by adding knowledge makes for a great leader. People should make time for themselves to expand their horizons and hear what others think or have to say. 

In conclusion  

Continuous improvement is important because it’s the best way to ensure that we’re doing things in the most efficient, effective, and productive way.

About Barometer  

Barometer is a cost consulting and data solutions company empowering SMEs to make better decisions using technology. We provide simple and easy solutions for customers to take control of their entire operation.

We are the one-stop shop to manage inventory, sales, purchases and cost. We help:
  • Create tailored tech solutions     
  • Analyse and improve overall costing     
  • Track and reduce variances     
  • Set SOPs for internal operations     
  • Provide valuable profitability insights
Explore more and reach out to us at consultbarometer.com
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The Author: Jay Dalal
                               Jay Dalal
A dynamic business leader with 8 years of experience in management consulting, business development and data analytics. A business operations and cost management expert, disrupting the F&B industry by using big data to make decisions to maximise profitability.  Expertise in: - Brewing beer - Identifying opportunities and strategy execution - Business development and customer relationship management - Data analysis and performance reporting - Process improvement and problem solving - Leadership and people management.

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