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The right approach to the business of cost could save you a fortune

Johannesburg, 26 Apr 2017
Read time 3min 10sec

There are two critical aspects related to cost that impact on organisations. The first of these is the cost of business, which can be defined as those expenses related to managing, operating, scaling and innovating within the business. On the other hand, the business of cost is a discipline involving the application of solutions designed to reduce costs within the business.

The difficulty in reducing such costs arises from the fact that when it comes to costs within the business, there are numerous multidimensional and complex relationships that need to be taken into account. If you are to understand these properly, you will need to also fully understand the contextual information that surrounds these relationships.

This is more challenging than it might appear at first glance, says Malcolm Stewart, Business Development Manager at Magic Orange. He explains the typical organisational approach to cost management tends to be one that adopts a one-dimensional view of such expenditures, ignoring the contextual information related to them.

"Failing to understand the entire ecosystem surrounding these costs properly makes it much more difficult to identify where interventions can be made in order to reduce such expenses.

"What you want is a tool and methodology that are able to provide deep insights into the relationships surrounding these costs, and flag those areas that are out of alignment, either from a benchmarking perspective or that of a cost versus attribute point of view. Once these anomalies have been identified, they can then be investigated further and something can be done about them," he says.

The more granular such a view into the cost ecosystem becomes, the easier it is to gain greater insight into the cost relationships, and the simpler it becomes to effect incremental improvements in the cost base.

"A good example of how this can work is that it is possible to improve productivity by enabling organisations to reduce budget cycles, due to complete traceability and the ability to drill down into the information to a very granular degree. Remember that in a shared cost environment, such traceability is critical to understanding both where costs should be attributed and how such costs are created and consumed. Once you understand this, it becomes easier to implement incremental changes that will reduce them."

Typically, explains Stewart, the bill of IT in a large enterprise environment that is managed on a shared cost basis is an area where such cost reductions can be effected to the tune of millions, but the same principles would apply in other areas, like transport logistics, manufacturing, telco networks, mining and production facilities, to name a few.

"Of course, having a tool that can help you unpack anomalies at a granular level is only half the battle - you also want something that is able to run complex 'what if' scenarios, in order to test potential outcomes and identify what the best course of action is, and what the cost impacts of this will be to the business.

"Ultimately, reducing the business of cost comes down to having the necessary insights at the most granular of levels in order to implement incremental changes. In today's tough economy, making wholesale changes is no longer a viable solution, but if you can understand the cost ecosystem properly, simply tweaking the right areas can help you to save a lot of money," he concludes.

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