Cost analysis in the IT sector basically consists of carrying out a strategic planning whose actions are aimed at meeting specific business demands. To that end, it is essential that all departments have tools and methodologies to apply the cost reduction.
In simpler terms, we are referring to the multidisciplinary and continuous process of IT governance. Its goal is to integrate not only the expenses, but also support-related services and projects.
By employing good cost analysis practices, it is possible to add value to the business and provide unique solutions to the audience. And that is what we’ll talk about in this post, read on to check it out!
What is the importance of analyzing costs?
Planning the costs of a company is one of the best ways to ensure its survival and growth in the market, even when dealing with the most complex economic scenarios.
This is because the cost analysis aims to consolidate data on financial performance and the execution of corporate activities. Based on this information, managers are able to make more assertive decisions regarding the expenses that can be eliminated and what actions to take to foster the profitability of the business.
How to carry out the cost analysis in the technology sector?
Now that you understand the importance of carrying out IT cost analysis, we’ll show you some tips on what you can put into practice in your business. Check it out below!
Map the costs into an infrastructure
Determining the costs to be analyzed, that is, mapping them in an organized, functional, and intelligent way, will allow the finance department to account for expenses and investments with the infrastructure needed to carry out the business activities.
List the tangible and intangible costs
We know that much of the work done by the IT sector takes place in the digital environment and, therefore, has a series of intangible costs, such as the acquisition of ERP and CRM software, APIs, plugins, etc. In addition to these, it is necessary to consider aspects such as productive time, customer loyalty and delivery times.
When it comes to a tangible IT structure, it is no different, as it is also necessary to invest in hardware (computers, mobile devices, equipment, etc.) and labor, for example.
Rely on technology to automate processes
Finally, cost analysis can be optimized by using innovative technological tools that can automate repetitive tasks that were previously carried out by employees.
In addition to reducing the workload of IT professionals with minor issues, business management software have a wide range of resources that support the accounting and finance department.
After all, unlike human workers, these systems have algorithms that are not susceptible to failure and order issues, such as forgetfulness, fatigue, or misunderstanding. In other words, they minimize the margin of errors, rework, and productivity losses.
As you can see, cost analysis for the IT sector encompasses a series of practices and the use of technological tools that contribute to the company’s development, making it easier for managers to make strategic decisions.
Do you want to know more about the MyABCM solutions for cost analysis using technology in your company? Then contact our team so that we can show you the very best in digital innovation for your business!
Unforeseen financial events are inevitable and, in most cases, cause difficulties for the business’s management. If we consider the various obligations of the company, such as salaries of employees, suppliers and tax payments, the emergence of unplanned debt may cause indebtedness. And that is why cost mapping is so important.
In addition to making the financial organization easier, mapping strategies for the destination of the company’s capital allow managers to face economic challenges more easily.
Based on this context, we’ve prepared this post so that you can learn the best tips for mapping costs and optimizing results in the company. Read on and check it out!
1. Map the processes
Before identifying the costs, it is very important to map the processes. That way, the manager will have a broader perspective on all operational actions of the organization, which helps when identifying which one leads to little or no practical results for the business and, therefore, can be eliminated.
This strategy consists of identifying all the company’s expenses, showing the origin of each one so that the manager understands its impacts on the organization, as well as the margin obtained, among other aspects pertinent to monthly budget planning.
2. Invest in partnerships that can help
Promising corporate partnerships are an excellent way to map costs and reduce operating expenses in the company. Do research on organizations that offer innovative cost management solutions, review the proposals, and negotiate?
Have reliable and trustworthy partners by your side, whether they are software providers, third-party carriers or any other. In your decision-making process, take into account not only the price, but also factors such as on-time delivery, quality of inputs, special conditions, among others.
3. Have a technological solution to optimize processes
Investing in a financial management technology can make the company’s cost mapping significantly easier. As it is equipped with intelligent algorithms and process automation resources, managers can count on a multitude of solutions for the day-to-day of the company.
Among its benefits, we can mention:
communication between the company, suppliers and customers is streamlined and improved.
cost reduction by task
more profitability to the business, due to increased productivity.
access to data updated in real time.
monitoring of financial indicators and metrics.
more streamlined workflow.
access to accurate reports and information for strategic decision-making.
As you can see, mapping costs is a comprehensive strategy that aims to increase the managers’ knowledge of the business’s expenses and investments. Relying on technology is the best way to identify and categorize all the organization’s expenses.
Do you want to know more about the MyABCM solutions for mapping costs using technology in your company? Then contact our team so that we can show you the very best in digital innovation for your business!
Technology is present in all sectors of society and has been helping companies to achieve better results, with a reduction in costs. Therefore, the installation of medical software is essential in hospitals and clinics. With it, it is possible to obtain many advantages in management.
But for you to choose the ideal one, according to your demands and infrastructure, you need to follow some tips, like the ones we will show you throughout this post.
Understand the importance of medical software
Imagine filling out medical appointments on paper, writing charts with pens, and filing documents in physical folders.
In addition to the delay in procedures, there would be an increase in costs and many security risks, not to mention even jeopardizing diagnoses.
By installing medical software, your hospital or clinic will invest in automation, being able to count on online appointments and have access to the status of customers, with all the contact information.
Thus, organization becomes a fact. Another advantage is the electronic medical record, allocating each patient’s information quickly.
As a result, the procedures are done with more quality, increasing efficiency, as the patient data can be consulted in real time, which means that numerous types of errors are avoided. But to choose the ideal software, you need to follow some tips.
Here are some that we have specially selected for your clinic or hospital.
Choose a company with credibility
When choosing an Information Technology (IT) service provider, the ideal is to choose a company that has experience in software management.
After all, this is a considerable investment that requires a system that is well-functioning and focused on the reality of your hospital.
Therefore, research the company’s history and consult with other customers to certify its reputation.
Observe the software interface
The interface is the users’ experience, which means it needs to be easy to understand for employees to adapt quickly.
With that in mind, run tests with the medical software and check if the navigation is smooth, if there are buttons that make the operations easier and the features needed for a hospital or clinic, such as electronic medical record, medical appointments, finances, inventory and registration, among others.
Analyze the security
Data security is critical. The software also needs to be stable and have good servers in order to avoid errors at any some point of the day.
As a lot of important patient information is entered into the system, keeping it confidential is essential.
Therefore, in your medical software analysis, you should pay careful attention to operational security.
Throughout its use, it is common for users to have doubts and need some changes from time to time.
There is nothing better than adequate support for everything to work smoothly. Therefore, check if the service provider offers a technical team to solve some issues. Ideally, the support should be 24 hours.
That is because hospitals and clinics operate full time and need special attention with regard to IT.
Variety of plans
As each customer has a different reality, you should have a variety of plans in order to choose the ideal one, such as storage capacity, support, features, etc.
Thus, check if the company has this diversity. By following our tips, the chosen medical software will certainly be the ideal one for your company, reducing costs by using technology.
Do you want to improve results in your hospital or clinic? Then contact our team and learn about our plans!
Carrying out a good cost management is not always a simple task for managers. (more…)
If you are thinking about opening your own clinic or practice, you know that it is important to be thorough when making the business plan, which among other items, includes the calculation of the cost per patient (more…)
It is a real challenge to improve the margins and indicators of the company while maintaining product quality. (more…)
Keeping your company’s costs down is a great advantage in business. However, in a volatile and competitive market, it is not always easy to answer the question, “how to control and reduce costs?”
Controlling your costs has become a priority as important as increasing your company’s revenues. This is why performing an internal evaluation of expenses and understanding how your processes function is the best path to identifying unnecessary costs and establishing an efficient program that will offer sustained benefits for your business.
However, it is up to entrepreneurs to find the best strategies to reduce costs and streamline business management processes. And that reduction means getting more flexibility to take advantage of market opportunities.
Thus, it’s essential to make investments and reap the benefits of this endeavor. However, we do recognize that reducing expenses is a big challenge, which is why we’ve selected a few tips to help you on your way. Take a look!
Measure your costs
Before you create an action plan to reduce your costs, you need to make an evaluation of your company’s expenses. Once you’ve collected this data, make a detailed analysis of your expenses from the most relevant (or the largest) to the least relevant. This analysis will allow you to identify many “hidden” costs that are certainly affecting your company’s results.
Knowing every expense is essential to coming up with possible solutions. Besides, by going through this exercise, you’ll be able to measure your main expenses and identify those that are unnecessary, or in other words, those that don’t add value to your company. Remember that it’s impossible to manage what you haven’t measured.
Make short-term, medium-term and long-term analyses
To take assertive control of your expenses and reduce costs, it’s important to visualize your reductions over the short-term, the medium-term and the long-term. To do this, evaluate alternatives that will reduce your costs over a longer timeframe. That way, your company will not risk basing its results only on the short-term, which won’t last very long. A study conducted by McKinsey shows that only 10% of cost reduction projects were successful 3 years after their implementation.
Improve process management
Evaluating only ledger accounts or cost centers is not enough to identify potential bottlenecks and problems in your company’s processes. Therefore, when thinking about processes, many activities are revealed – such as rework, duplication, or processes and actions carried out with low value for the company and its customers.
The problem is that many companies have difficulty mapping and understanding all the processes involved in the production of their products or services. Completing this task takes time and requires the business to commit to evaluating the enterprise.
It is important to define what are the outcomes or products delivered at the output of each process, its components, suppliers and limits. Since controlling and reducing costs are tasks that require information, you need to pay attention to internal processes.
Renegotiate or rethink contracts
Negotiating with creditors can be a viable alternative to controlling and reducing costs. Therefore, make agreements with suppliers and negotiate the best payment terms so that they can be realized without major financial consequences.
In addition to this, rethinking contracts and researching the market to find out what’s available from other suppliers is a strategy that can also offer large savings for your business.
So, improve your purchasing sector. That way, this department will be able to find trade partners that help boost your business but also do not represent unfeasible investments.
As controlling and reducing costs may cause the company to switch suppliers, this possible change has to occur with the right planning. This prevents this exchange from harming the company’s workflow or the quality of what is offered to the customer.
Automate cost management
Enterprise Resource Planning (ERPs) is a solution that enables enterprise-wide data integration. However, they do not offer all the subsidies for efficient cost management, especially when we want to understand the impact of indirect costs on various products and services.
The tool is also not able to simply model profitability analyses per customers, channels or regions, which is so critical nowadays. Faced with this demand, companies (such as MyABCM) offer advanced tools for cost, profitability and performance management through software designed specifically for this purpose.
Reducing company costs is the best decision, especially in a market that’s this volatile and selective. This decision requires investment in appropriate technology. And just the desire to accomplish it is not enough if the company does not have the right tools for this mission.
There is no reason for a business to absorb hiring and payroll-related costs from non-priority sectors. Therefore, when working with outsourced labor, the company gains efficiency, as it hires a partner specialized in that market to serve it.
In addition, there is more freedom to demand results and compliance with what was agreed in the contract. The business can also take advantage of talent of their managers and Human Resources professionals in the management and training of employees who are essential to the brand’s target activity.
Because controlling and reducing costs requires efficiency, outsourcing is a perfect alternative to achieving better financial results without disrupting internal activities.
Invest in professional training
While this topic sounds more like an investment than a cost-cutting action, keep in mind that rework can negatively impact the results of a business. Therefore, ensure that your employees receive appropriate training after hiring and that they are able to perform their duties.
In addition, if you identify failures, turn them into learning, using them as cases in internal training. That way, the company will be able to understand how to control and reduce costs through strategies that keep their staff motivated and feeling valued.
After all, educating a professional – making their performance better – can be more beneficial to an enterprise than trying to hire someone who already has certain professional qualities.
Fight unnecessary costs
Technological advancement can also be used to fight against waste, from the simplest, such as resource consumption, to the most complex, such as improperly performed activities.
Unnecessary costs are associated with a company’s lack of knowledge of what is most modern in its market, and what could be used to make it more efficient.
As we have seen, answering the question “how to control and reduce costs?” requires managers to be willing to assess their companies with a careful eye, examining the details without fear of having to admit that certain strategies did not bring the expected results.
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Changes in market behavior have made traditional costing methodologies obsolete. Given the market’s great competitiveness, with ever slimmer margins, how can costing systems be designed to inform more assertive decisions and maintain business profitability?
It was within this context that Activity Based Costing, or ABC first appeared. The ABC system is based on the analysis of specific costs related to every activity performed by a company in the manufacturing of its products or services. Based on these activities, resources are allocated to various products, services, markets, etc., generating a clear vision of the company’s costs. In this manner, the company has a more precise view of the impact of each activity on the operational costs of the business, facilitating more adept management of its profitability.
Origins and Development of Activity Based Costing
Studies and documents demonstrate that the ABC system was first employed to some extent by large American industrial firms in the 1950s. However, this methodology was only promoted and popularized by studies conducted by Professors Robert Kaplan and Robin Cooper in the United States at the beginning of the 1990s.
These two professors perceived that for a series of reasons that we will present below, the method used to cost various products and services no longer reflected organizational reality and was causing great distortions and great harm to company results.
In their studies, Professors Kaplan and Cooper identified 3 independent and simultaneous factors which justify the implementation of the activity based costing system:
TheModification of the Cost Structure since the 1950s
The fact is that the cost structure has changed drastically over the past 50 years. In the past, labor costs represented 50% of total product costs, followed by raw materials at 35% and overhead costs of 15%. Today it’s not uncommon to see overhead costs represent 60% of product costs, raw materials average 30% and labor costs represent less than 10% (in service and government organizations the overhead is even greater). This is why using the number of labor hours to assign allocation of costs made sense until the middle of the twentieth century, but today it makes no sense given the current cost structure.
The number and quality of competitors has changed greatly in recent years, which has resulted in cost margins diminishing year after year – making it that much more important to control costs well. Within this context, the implementation of the ABC costing methodology promotes a greater control of costs, making it possible to increase competitiveness due to better profit forecasts.
Fall in Implementation Costs
The cost of implementing/measuring has fallen greatly due to advances in, and the wide availability of, information technology. In the past, the cost of implementing an effective ABC costing system was prohibitive, and was possible only for companies with access to large applications running on large computers and mainframes.
With the development of computational technology, this methodology has become accessible for a large number of organizations. Thus, the main reason why this costing system became popular after the articles published by Professors Kaplan and Cooper was that advances had taken place in both hardware and software.
These technological advances made it possible for the system to be taken off the drawing board and put into practice, mainly in the implementation of costing models for more complex organizations which require greater detail.
The trigger missing for the popularization of this methodology was the rise of micro-computing at the end of the 1980s and the development of software GUIs through operational systems such as Windows (Microsoft), OS/2 (IBM) and Mac (Apple). With these events, applications that previously could only be run on large computers and mainframes could now be run by any organization and were accessible to a wide variety of users and departments.
Thus, today many organizations in the manufacturing, government, service, telecommunications, banking and logistics sectors have used this methodology with success. Its use, contrary to what many imagine, has not been limited to large corporations and has spread to many medium and small companies in both the public and private sectors.
We’ll show you everything you need to know about this system, including its advantages and how to implement it. Take a look!
Differences between ABC Costing and Traditional Costing Systems
Traditional costing systems arose to meet tax requirements and stock valuations, but these systems have various flaws, especially when used as management tools.
This happens because these traditional costing methodologies are focused on the various products that companies offer. Costs are assigned equally among these products because it’s assumed that each item/sku consumes the organization’s diverse resources in proportion to the volume of the products produced.
In this way, various “volume” drivers such as direct labor hours, machine hours and raw material allocation of costs are used as criteria to assign overhead costs.
This methodology means that these values only reflect an estimated average. Even though a complex study is used to arrive at this calculation, this is a scenario that by definition will never correspond exactly to the specific characteristics of each company and its individual processes.
These volume based drivers also fail due to the diversity in the form, size and complexity of these products. There’s also no direct relationship between the production volume and the effort or costs consumed by the organization.
As a result, many managers of companies that offer a variety of products and services are making very mistaken decisions in terms of prices, their mixes of products and services, and their processes.
The Efficiency of Activity Based Costing
In contrast to traditional based costing systems, activity based costing focuses on an organization’s various processes and activities. In addition, there are differences of treatment in terms of the various clients, channels, markets and regions that are often ignored by companies– and which later prove to be fundamental to making an assertive decision.
Initially the costs that originate from every activity of the company are tracked. Then these costs are assigned and the manner in which the final bearer of each cost has consumed the services of each activity determines how these costs are allocated.
Thus, these varied costs are assigned to a variety of activities for all of the Products, Clients, Channels, etc. based on the use of each of these in the organization’s activities. This way the Overhead is assigned in an appropriate manner always respecting cause and effect relationships and not using “volumes” as a basic criterion for equal distribution.
Once the costs of the activities have been determined, the organization can begin to manage them and question why each is affecting the costs of the company’s various products, clients, channels and services. At the same time, this system makes the costing process more accurate and precise.
Focus on Activities, not Products
What makes this costing model an extremely efficient methodology is that it begins with thinking about the issue of costs. What was treated in other models as an indirect cost linked to the product is now treated as a direct cost. The focus shifts to the activities performed rather than the products associated with them.
The key point is that the fact that each product, service, client or channel is the result of a variety of activities that, if treated individually, have a greater chance of providing specific data that can be converted into more exact values.
The Key is Cost Tracing
The efficiency of this costing methodology is in its ability to provide a logical tracing of costs. The fact that it isn’t linked to the timing of each process makes it possible for ABC costing to identify each expense and designate it as part of a specific activity.
In this way, even if certain expenses are grouped within the same cost center, they’ll be organized according to the activity to which they’re linked.
This optimization of cost control brings countless benefits to all of the company’s departments as we’ll show below.
The Advantages of Using Activity Based Costing
A series of advantages come from a company’s implementation of ABC costing which go beyond the accuracy of the definition of the allocation of costs of products, services, clients and channels.
We’ll discuss some of the most important ones to clarify how it increases a company’s profitability and decision making ability.
More Precise Information
As soon as the cost model is created, with well-thought out assignment criteria and future implementations established – you’ll have better and more precise information available for your decision making.
This makes the company’s planning and decision making more accurate. Managers have a better idea of future profits and spending as well as data that will enable them to make efficient decisions in terms of product and service pricing, product mixes, outsourcing or internal development, research and development investments, automation, marketing, campaigns and much more!
A Better View of Your Process Flow
Here we can mention not just more transparent cost data for each department, but also a review of internal controls and greater visibility for every process.
As the company gathers more information about its processes and their influence on the company’s products, services, clients and channels, it will be able to make more assertive decisions. This provides each manager with more tools to manage the team’s costs as well as information to audit and analyze these costs.
With an understanding of the costs of each activity, these managers can make decisions based on business processes and activities. In addition to this, once these activities have been mapped, labels with attributes can be associated with each one making it possible to study whether they add value or not.
The description of the specifics of each process and its costs makes a multidimensional analysis with a panoramic (global) focus on the costs of each activity possible. In this way, greater than expected costs can be identified and the budget can even be revised to eliminate expenses that are revealed to be greater than necessary.
Thus, reducing costs becomes just a question of time, because each manager has access to more precise information to analyze these processes.
It should be remembered that more effective cost control is something that makes this methodology efficient for small and large companies, no matter what their sphere of operations.
The implementation of an ABC Costing system may seem complicated, and it will vary somewhat depending on the size and complexity of the activities, products and services of each company.
But to simplify the process and implement the ABC methodology in an efficient manner, you can use the following list of steps as a reference.
They apply to companies of all sizes and business models, and help in the creation of a budget based on activities that promotes greater cost control and profitability for your organization.
Define the Implementation Tool
A sophisticated cost model requires a specific system. Many companies already possess a costing mechanism that uses spreadsheets. Others try to customize their ERP or even believe that BI can solve cost management.
However, the accounting and consulting firm of Ernst & Young (EY) in a recent article recommended none of these options. According to EY, “the model can be developed using Excel, Access or internal development, but this can only be done for very simple models, and even these models are extremely limited when more elaborate analyses are required. This doesn’t even mention the issue of integrating such as system with other company systems, cost tracing, model auditing and the integrity of the data itself.”
In terms of an implementation using an ERP, we know how expensive and complicated it is to customize these systems. In addition, their static and cumbersome nature doesn’t provide the flexibility required for an implementation of this kind.
In terms of BI systems on the other hand, these systems present information that already exists within the organization, but we know that cost modeling requires profound transformations in terms of assignments, including reciprocal costs, and the understanding of multiple levels and dimensions, which is something that is not easily done or practically impossible to implement within a BI system.
Eliminating these practical implementation problems, the MyABCM product suite is the global leader in cost management solutions. With its multidimensional analyses, organizations can use it to model, analyze, and create simulations with great flexibility and security providing full integration with the organization’s corporate systems.
Determine the Project’s Objectives
Here it’s important to understand what you’re seeking through a project of this nature: you want to determine the costs of products? Clients as well? What about channels? Markets, regions, projects? There are many possibilities. Within this context, one of the greatest mistakes that can be made is to begin modeling and then change one’s assumptions in the middle of the project.
In addition, another important point to be considered is creating an implementation agenda with clear definitions of the detail to be adopted and possible criteria and implementation milestones and ideas.
Map the “Intelligent” Activities
This part of planning is fundamental to the efficient implementation of the model. It’s not unusual in projects of this kind for managers to want to map hundreds, thousands, and sometimes even tens of thousands of activities, frequently reaching the level of tasks.
This is a very inefficient way of working, since mapping many activities will certainly involve a lot of effort for relatively little gain, especially for activities that are not very relevant. In addition, using very complex modeling from the outset will make the initial integration of the model with other corporate systems a great challenge.
The best practices of implementation include the ability to model in stages, with complexity increasing as the model evolves, while always bearing in mind the relevance of what is being mapped. According to Gary Cokins, one of the foremost experts in Cost Management, “organizations should question whether the activity’s important and relevant to the company.”
Define your Resources Well
Here you need to define your initial costs, expenses, cost centers, accounts, possible groupings (Cost Pools) that you should establish, and the Revenues which will provide the initial Resources to be assigned.
Define the Various Assignments
This part of the planning is important because it ensures that each Resource is linked to a process which is identified by its relationship with the activities linked to a product, service, client, channel or project.
Determine the Drivers
Once your Resources and Activities have been defined, determine the cost drivers you wish to use and the criteria for each one.
This way the calculation process will be coherent because it will represent a cause and effect relationship between the cost source and destination.
Calculate the Model and Create Reports and Analyses
Once the model is defined it’s time to perform the calculation, generate simple and complex data cubes (which will later make it possible to conduct various analyses using dynamic tables), and create simple and advanced what if scenarios.
With your application and report analysis, your system can evolve, which will affect the effective tracing of more and more of your company’s activities.
The implementation of an ABC Costing system offers you greater control of your organization’s costs. This methodology develops tracing and allocation models that identify the allocation of costs related to each activity with precision as well as how they affect your company’s profitability.
In this way, it’s possible to construct an efficient management system based on activities, making it possible to reallocate resources and make a structural reduction of costs, promoting greater profitability, even within scenarios that are more and more competitive.
In addition to this, this system makes it possible to make assertive decisions with assurance in terms of pricing and the analysis and control of products, markets, channels, clients, etc.
Thus, your implementation will culminate in greater profitability in the middle and long term through a detailed vision of organizational processes and will also result in an increase in your company’s competitiveness.
With these tips you can implement an activity based costing methodology in a way that will make this process more efficient and help your company grow more and more.
Within this context, MyABCM’s software has been developed to provide management based on activities, favoring cost control and your business’s return on investment.
Thus, using a system like the MyABCM solution surpasses the activity and cost management capabilities of any other software. Our systems are developed to meet the specific needs of every size of business and offer the allocation of resources in multidimensional analyses that contemplate all of your company’s relevant activities, can be adjusted for any level of complexity, and make it possible for you to constantly evolve your costing models.
Want to know more about our solutions and how the ABC methodology can help your business become more profitable? Find out about our successes and get in contactwith MyABCM to answer any doubts you have and receive all the support you need to apply this methodology!
As markets are becoming more and more competitive, managers need to find ways to make their processes more efficient and achieve better results.
The concept of Lean Six Sigma and the benefits it brings have arisen to help companies in this aspect. Keep reading this post to find out more about this topic!
What is Lean Six Sigma?
To better understand what Lean Six Sigma methodology is, first we need to understand the separate concepts of what is Lean and what is Six Sigma:
Lean is a work philosophy in which the goal is to eliminate waste within a company and processes that don’t provide value to the customer;
Six Sigma (or 6 Sigma) is a work methodology that deals with a group of best practices that seeks to optimize the performanceof processes, by eliminating defects and nonconformities – in line with the company’s specifications.
Lean Six Sigma is a combination of both philosophies which seeks to achieve excellence by optimizing processes and reducing waste. This concept has arisen due to the desire of companies to make their operations more agile and efficient.
How should you apply it to your company?
Lean Six Sigma can be applied to any company that‘s seeking to maximize its results and make its operations leaner and more precise. However, the first step in doing this is to be aware that you’ll have to break paradigms and you’ll need to be willing to do this.
The change begins with the mapping of your processes. In addition to evaluating your activity flow searching for errors and waste – to eliminate them – you also need to understand how a company creates value for its customers.
When the creation of value is defined, this is when you should identify which steps in each process don’t contribute to this goal and eliminate them, adjusting your work methods so that your operational performance doesn’t suffer.
The focus should be on improving processes and avoiding waste, which can be characterized as:
idle time — long waits for raw materials, tools, information, etc.;
bottlenecks in transport, among other things.
In general, the goal is to implement this philosophy in your company and create conditions that will ensure that the correct materials are used, in an appropriate place, in an ideal quantity – always avoiding accumulations of material and losses and correcting process failures as they occur.
What are the benefits that it offers?
The adoption of the Lean Six Sigma methodology offers various advantages for your company in terms of production and your overall results. Among these benefits, we can mention:
Applying Lean Six Sigma takes time, but it’s relatively simple and it will bring your company closer to achieving excellence in its activities. In addition, with all the improvements made, it’s safe to say that it will also provide you with a competitive advantage.
Frequently reducing costs ends up becoming a necessity for a manager. However, it’s extremely important to know how to do it, because it will, after all, affect your company’s strategies. Contrary to what many think, reducing costs isn’t something bad and doesn’t always involve laying off employees – and it can, even, serve to stimulate greater efficiency in your company.
Want to know how you can reduce costs without having a negative effect on your company, your employees and your working environment? Then read our tips!
The first step is identifying where your company is wasting resources. Small expenses, considered insignificant, can represent great savings for your company.
Electricity is a good example of this concept. That’s why you should verify the efficiency of the equipment that you use in your company. Exchanging them for more economic models could be a good investment.
Work with targets
Companies need targets, not just to encourage growth, but also to measure the assertiveness of the decisions taken. When entrepreneurs have to decide how to reduce costs, they need to maintain the strategies that have worked in the past, rather than those that have proved to be mistaken.
A good source of information is evaluating the targets that have (or haven’t) been attained. They will provide you with valuable data.
Improve your training process
Rework is synonymous with losses. If your company has to do a lot of rework, investigate the cause. In many cases, employees haven’t received adequate training and this is why they can’t perform their jobs well, wasting their work time, and in some cases, raw materials.
Instead of beginning a hiring process — which is normally expensive — look at training your current employees. Besides being less expensive, which will contribute to your cost reductions, this initiative can greatly improve your company’s efficiency.
Reevaluate your company’s investments
A good way to discover how to reduce costs is to reevaluate your company’s investments. Many companies have investments that are distant from their area of expertise. In some cases, the rates of return aren’t advantageous and these investments only generate the expenses of maintaining them.
Your company’s investments, besides being safe, should be simple to manage — this way, you’ll save in terms of fees and/or the costs of the professionals responsible for monitoring them.
Seek new suppliers
Besides improving your buying process, meeting with your suppliers can be a way to discover how to reduce costs. In many markets, there’s been an increase in the number of companies that can be considered potential suppliers. Your purchasing department should evaluate the reputation of these companies — as well as delivery logistics and payment timeframes — to know if it’s viable to change a supplier.
The entrepreneur should always be looking for chances to reduce company costs. This attitude normally results in improved company processes and greater financial solidity for your business. It shouldn’t be seen in a negative light, and certainly not associated with layoffs or compromising the quality of your final product.
It’s rather a series of natural and constant advances that can be found in successful companies. It’s necessary for businessmen to keep their business data in an organized and secure form, because this will be fundamental when it comes time to find ways to streamline your company’s processes. Remember: you can’t manage what you can’t measure!
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