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Cost Cutting: The CFO Check-Up (Part One)

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Cost Cutting: The CFO Check-Up (Part One)

by CFO Innovation Staff, 15 September 2009
topics:
Business Expense Management Finance and Banking
tags:
courses of action income statement profit recession

In their 44-page “Managing in a Downturn: The CFO Survival Guide,” PricewaterhouseCoopers puts together comprehensive and cleverly organised action plans for CFOs to consider as they navigate the treacherous waters of the global recession.

 
The audit and assurance, tax and advisory firm combs through the income statement and balance sheet and makes recommendations for each line item that it believes the CFO needs to pay special attention to. It also examines areas outside the financial statements that the CFO is increasingly being asked to be part of, such as managing risk and decision support.
 
We at CFO Innovation think this is a smart approach because it helps ensure that the CFO addresses all aspects of financial and other operations in responding to the current turmoil. Given the enormity of the task, it is easy to miss some line items that may in fact hold the greatest promise for cost reduction and efficiencies, as determined by the organisation's individual situation.
 
We also applaud PwC’s categorisation of the suggestions according to time frames – less than three months, three months to 12 months, more than 12 months – which cuts the daunting tasks into manageable pieces and helps the CFO decide which chunks he or she should tackle first.
 
The following suggested courses of action focus on items in the income statement. Part Two focuses on the balance sheet, while the Final Part tackles risk management, decision support and other issues.
 
Revenue protection and growth
Short-term opportunities (less than three months)
  • Segment your customer base (considering risk, price and service sensitivity, underlying value to the business) and develop strategies for each segment
  • Undertake a deep review of all existing pricing and contractual arrangements to minimise any revenue leakage
  • Review product range and service levels against core customer requirements and remove non-value adding elements of your proposition.
 
Medium-term opportunities (three to 12 months)
  • Accelerate specific new product developments to ensure range reflects new market requirements
  • Track key lead indicators at risk customer segments and ensure any retention efforts are targeted and cost effective
  • Review pricing process and controls to maximise pricing compliance
  • Review of customer relationships to identify joint contractual and pricing improvement opportunities.
 
Long-term opportunities (more than 12 months)
  • Continue to monitor the pricing and contracting process to ensure maximum revenue capture
  • Ensure plans are in place to proactively capture customers from failed competitors
  • Refocus on growth markets and customer niches.
 

Cost of sales – Strategic cost management

Short-term opportunities (less than three months)
  • Identify, prioritise and execute cost reduction initiatives, focusing on the quick wins that are within the company's direct control over next 12 months
  • Accurately forecast how much cost improvement is required before taking any aggressive actions such as large layoffs.
 
Medium-term opportunities (three to 12 months)
  • Establish a strategic cost management framework to continually assess the opportunities and execute cost reduction initiatives
  • Benchmark the cost base with industry and identify the improvement areas.
 
Long-term opportunities (more than 12 months)
  • Review the business operating model to inform strategy formulation
  • Consider introducing process efficiencies such as Lean and Six Sigma
  • Assess the potential to centralise corporate functions such as procurement, IT, R&D, etc
  • Establish outsourcing options
 
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