December 9, 2020
“Look everywhere you can to cut a little bit from your expenses. It will all add up to a meaningful sum.” – Suze Orman
Cost reduction is a critically important goal of every organization. Decrease in operational costs signifies higher profit margins and a better organizational budget. It is also one of the key measures of success for Business Improvement programs. According to the PEX Network Biennial State of the Industry Report 2015, around 22.2% professionals consider Cost Savings as the primary measure of success for their Process Improvement Programs.
However, gone are the days when developing a cost reduction strategy was as simple as cutting down the budget randomly or trimming expenditures across the board. Identifying long-term savings opportunities and achieving sustained cost reduction is now becoming more challenging than ever. The latest PEX report also revealed that cost / budget limitation is a major challenge to Operational Excellence for almost 10.04% enterprises.
Though there are no short cuts in organizational cost reduction, a strategic process improvement approach can be quite helpful for it. In fact, 17.9% enterprises believe business improvement programs to be “a way to cut costs by improving productivity and / or reducing headcount.”
So, how to cut down unnecessary expenses through efficient Business Process Management (BPM)? Do consider the following steps based on a structured methodology:
1. Know Your Processes
Cutting costs at random will give you only short-term savings instead of making you form a robust cost reduction strategy. Businesses that aim for achieving cost-effectiveness in the long run should have complete understanding of all their processes. A ‘process library’ (the process hierarchy including core business processes, business process groups and various business functions) comes handy for this purpose. It works as a framework for all the current processes and helps in:
- Identifying the processes that need immediate attention
- Highlighting the processes that are directly associated with the bottom line of the organisation
- Setting the direction for a thorough analysis
- Identifying process dependencies
These findings are essential to lay the foundation of a robust business process improvement strategy that can aid in cost savings.
2. Map Your Processes
“You think you know, but to know what you don’t know – start documenting your Business Processes today!”
Creating an end-to-end current-state process map is the second big task to focus on for controlling organisational expenditure. It captures an overall view of all the processes currently being executed in an enterprise along with the complete breakdown. The deeper you dig into the lower-level views, the better you develop the idea of how the processes works, how they are interconnected, and how various expenses are associated with them. Harnessing the endless potential of process mapping helps an organisation in:
- Identifying the pain points that require to be addressed immediately
- Understanding the bottlenecks that need to be eliminated
- Spotting the gaps between the current-state and desired future-state
- Finding the presence of duplicate or unnecessary processes
- Achieving operational transparency
- Ensuring better communication
- Making better decisions
Mapping makes the analysis of business processes easier, which underlines the related expenses and forms the baseline for improvement.
3. Analyse Your Processes
Analysis of cost is essential for crafting a reduction strategy and process analysis is essentially the foundation of it. A process can be analysed in either quantitative or qualitative way. The quantitative aspects of a business process analysis are usually classified in the following way:
- Process Value Analysis: To analyse the value of each of the tasks to know whether it is contributing directly to customer satisfaction (CVA or Customer Value-Added), adding value from the business perspective (BVA or Business Value-Added), or not adding value at all (NVA or Non Value-Added).
- Process Time Analysis: To know if the time invested is being utilized the right way. It again has two components:
- Total Execution Time
- Total Delay Time
- Process Cost Analysis: To ensure that the processes are adding dollar figures to the business. Two components of this are:
- Total Execution Cost
- Total Delay Cost
- Process Efficiency Analysis: To determine which process are efficient and which are not based on an efficiency threshold.
However, everything can’t be analysed quantitatively. There are also behavioural, technological ad procedural aspects of processes which are analysed in a qualitative way by considering the following three components:
Finally, all the observations are synthesized to come up with improvement solutions for each of the processes which include:
- Removal of process duplicities
- Deletion of non-value adding processes
- Merging of two or more processes into one
- Incorporation of necessary processes that are missing
This practice curbs some unnecessary costs associated with the processes too.
4. Identify Your Expenses
Defining the costs is crucial prior to finding the reduction opportunities. It enables the process analysts to categorize all the expenses (from the highest to the lowest) and sort out the priorities. So once the value and cost analyses are done, one needs to separate the areas offering major savings from the ones in which the business has been spending the most. There are 3 effective ways of doing it:
- Grab every feasible opportunity that ensures cost-cutting
- Follow an approach in which the areas involving the largest costs are prioritised to make the most of the investment
- Follow an approach in which the most accomplishable improvements are prioritised to make the most of the opportunities
A process management initiative facilitates this task by defining the flow of organisational processes and providing a clear view across the functional silos. It makes cost management easier and helps tune-up the current-state process model accordingly.
Achieving cost-efficiency becomes easier and more effective for organisations having robust strategies. In Business Process Management, a structured approach is followed to reduce organisational expenditure, which is also one of the strategic goals of the program, and it includes:
- End-to-end process optimisation
- Removal of wastes
- Efficient utilisation of resources
- Alignment of process components
- Improvement of process performance
In essence, BPM targets the areas where costs need to be reduced and hits upon those. As a result, companies can face business challenges successfully and ensure the biggest returns with maximum savings.