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Cost Reduction Essay

4991 words - 20 pages

Intelligent Cost Reduction
Developing & executing a program to reduce cost & create a sustainable operating platform
July 2008



1 2 3 4 5 6 Point of view Anatomy of a successful total cost management program Beginning with the business & front office Opportunities in the support units Some lessons learned PwC qualifications to help

3 7 11 16 19 21

Point of view

Point of view
• Cost management is a key issue today and for the foreseeable future – The market is experiencing a severe liquidity crunch and the explosion of a global asset bubble well beyond sub-prime. At the root of this crisis is not only asset values, but the amount of capital ...view middle of the document...

Many do not understand the true profitability of those businesses today at the proper level of granularity (e.g., desk level, product, etc.). To make the right decisions regarding the business platform going forward, a fundamental understanding of where the institution does and doesn’t make money is now more important than ever. Of particular importance is the need to understand the interrelationships between different businesses, products and geographies and the overall impact of curtailing or exiting certain activities on the broader franchise. • Focusing on operational costs only will not be sufficient – Organizations have focused most previous cost cutting efforts largely on back office operating costs. Areas such as front office costs, the costs of risk management failures and funding costs will have to be considered in new ways to achieve a cost baseline that is acceptable in today’s markets. Operating costs will also have be re-examined as well, of course, and perhaps in different ways.



Intelligent Cost Reduction

Point of view (continued)
• Many organizations confuse “cost postponement” with total cost management – Many financial institutions simply stop investing in new projects and people during difficult times in the market. Further, many simply reduce their support teams, etc., and hire them back when the markets bounce back. There is often a price to pay for these moves in terms of customer loyalty, heightened risk and future profitability. We consider many of these actions cost postponement as opposed to true cost reduction. We recommend that our clients measure the quality of their efforts through analyzing the types of reductions they are making and how they impact the platform and the company longer term. • A well organized end-to-end program is needed – Many organizations have a cost cutting “czar” or team, but lack an organizational-wide approach to the issue. This leads to sub-optimal execution, missed targets and worse. Avoiding these pitfalls requires an overall program structure with a clear executive mandate, defined targets, a management organization for the effort and strong engagement from each of the business units and support areas. • Consistent investment is required – Building a sustainable competitive cost platform requires consistent investment, even in times of financial stress. Given the markets today, managing the program in a way that creates investment funds through tactical, short-term savings to fund medium to longer term savings is critical. • The tone at the top is key – The overall objectives, targets and business decisions made at the executive management level are more important than ever to achieving sustainable improvement. • Create an executive dashboard to monitor results – Implementing an executive dashboard with key metrics and reporting will help management to view and gauge the overall effectiveness of their program over time. • This is a survival issue on...

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