Your first 100 days in a new position are a critical time, doubly so for a high-stakes role such as Chief Financial Officer. As CFO, you’ll be looking to make an impact on your organization by controlling the spending of the company and finding ways to cut costs.
However, doing so recklessly can do more harm than good. That’s why in this article we’ll show you some ways to effectively control spending, without affecting the aims of your organization.
Understanding the Role of Cost Control
At its core, cost control is about identifying the ways in which business expenses can be reduced or eliminated for the sake of increasing profits. Having said that, you must be careful to avoid hurting your organization’s strategy when looking for ways to cut costs.
For example, if your organization is focused on delivering a high-quality product your cost control measures can’t be directed at the material or services needed to deliver that product.
There’s also an important element to consider when thinking about cutting costs: your stakeholders.
Manage your stakeholders
You shouldn’t leave your stakeholders out of the conversation when it comes to cost cutting. Your staff and management can give you valuable insight into what is essential and what is superfluous. Your suppliers could offer you alternatives to reduce costs. Even your customers can help you with your cost control strategy, by letting you know what they expect from you.
Cost control can be done with your stakeholders, or at their expense. The latter can lead to unforeseen issues down the line.
How to Effectively Control Your Costs
Cost control is so much more than just cutting expenses. You also have to consider how you are using your resources and the processes you have in place for acquiring them. Here are 3 ways to lower your costs without affecting your goals:
- Look for budget variances
Budgets are essential to cost control measures, so when there’s a discrepancy between your budget and your actual costs, you need to take a look at that. Why does such a discrepancy exist?
Possible reasons include:
- How material is used. Are you using more material than you are supposed to? Is the material that you are using defective or have any issues?
- Emergency ordering. Ordering more material outside of the normal processes can lead to higher material costs.
- Review your supplier relationship
You shouldn’t be changing suppliers willy-nilly, but it doesn’t mean you can’t look around for better opportunities. You can use RFQs to get a sense of the market and promote supplier competition. Furthermore, if you have multiple suppliers for similar services or materials you could consolidate them into a single one. Increasing the purchase orders with one supplier can lead to better discounts.
Also, be on the lookout for negotiation opportunities to save and avoid costs. For example, if you have a short-term contract and your supplier increases the price when you renew, you could try negotiating for a longer term in exchange of cutting that price increase.
- Streamline your procurement process
According to the American Productivity and Quality Center, organizations spend up to $506 per manual purchase order. Automating your purchasing process not only helps you reduce that cost, but also improves your spending visibility, eliminates human error, and allows you to consolidate your purchase orders.
Plus it helps you reduce maverick spending, which according to the CIPS can account for up to 80% of an organization’s expenditure.
Controlling costs will be a critical part of your new role as CFO, but you must make sure that you don’t do it at the expense of your organization’s strategy. At Procurement Express, we have the necessary tools to help you review your spending and know exactly what to focus on.