Optimization of costs: plan, activities

Optimization of expenses at the enterprise is a necessary and important stage in the conditions of an economically unstable situation. Let's consider it in detail.

Main questions

To do everything right and not become a "tyrant and satrap" in the eyes of the staff, it is necessary to understand:

• existing types and options for cost reduction;
• principles and methods of planning accompanying measures to optimize expenditures;
• the most effective ways to reduce costs from a practical point of view;
• ways to reduce the cost of materials;
• the benefit of reducing transport costs;
• ways to choose a strategy to reduce costs;
• basic principles of optimization.

Budget

They often try to shift the budgeting process todepartment, whose employees believe that in this issue they are not fully competent. However, budgeting is an important stage. Participation in it allows you to get a large amount of information that is important for all departments.

The budget is formed in several stages:

• Formation of the plan-project of the future budget;
• consideration of the draft budget;
• approval of the budget;
• budget execution;
• performance analysis.

Optimizing budget expenditures is the next step after budgeting.

Expenses

Optimization of costs is impossible without understanding the meaning of the term "costs".

They are those funds that are involvedin the formation of profit for a certain period. Part of the costs are accumulated in the form of finished goods, semi-finished goods, intangible assets or unfinished construction in the company's assets. The scheme shows a simplified structure that complies with IFRS.

Simply put, spending is an increase in liabilities or a decrease in assets, which leads to a decrease in capital.

Optimization

It is believed that cost optimization begins with a reduction in costs at the current time. However, this is not quite true.

Optimization of budget expenditures in the enterprisebegins not at the moment when they begin to maintain a strict control over the expenditure of money, which already lie in the account. Unfortunately, at this point there is absolutely no control over the question of where the money comes from. Attracting active lending, as well as managing only expenses, entails a chronic shortage of funds in the enterprise, and then - a possible bankruptcy.

The effectiveness of this procedure depends on theaccounting and revenue, and expenses. These articles need to be planned, and management must constantly monitor the figures by year, quarter, month or other financial period. There is always a possibility that projects that are currently expensive, in the long term, will be very profitable.

Areas of work

Optimizing costs does not mean committing to the detriment of business interests. The task of reducing costs should be addressed in the best way, by comparing costs and revenues with each other.

You can solve the problem in several ways:

1. Reduce costs through internal resources(direct reduction). These actions include improving productivity, reducing material costs, reducing management costs, as well as reducing the staff of the enterprise.
2. Reduction of production costs (relative decrease). This can be achieved by increasing the volume of production. In this case, much less money will be spent on one detail.
3. Formation of the offer due to the conducted marketing research. In this case, the growth of the volume of purchases by customers is stimulated and an influx of new customers is formed.
4. Formation of strict financial discipline. In such an option, a limited number of persons may give a "go-ahead" for expenses.

The program for optimizing budget expenditures should cover the most narrow areas. Then it will be most effective.

Ways of optimization

The cost optimization plan can provide for three directions, according to which the enterprise can go.

There is an express reduction, a reduction in the company's expenses at a rapid pace, systematic reductions.

Each of the methods is applied in a specific situation. The measures applied in this regard must be in line with the current state of affairs and also rely on long-term planning.

Express reduction

Choosing such a method to reduce costs,it is necessary urgently to stop payment of expenses on some articles. To determine the result, you need to find out the likely consequences of each optimization method.

All costs are divided into:

• High priority. Such costs are necessary for the enterprise to continue its activities. These include the payment of wages to employees, the purchase of raw materials for production.
• Priority. This is the cost of mobile communications, advertising. If you stop the payments for this article, then the work of the company will fail.
• Acceptable. These include benefits for employees, payment of sanatorium treatment to staff. If the enterprise does not have available funds, then these payments can be suspended, but it is preferable to save them.
• Unnecessary. An example of such costs can be the payment of a private flight for the head of the company. The cancellation of such expenses will not negatively affect the company's activities.

When choosing an express reduction in costs, first of all they stop paying on the "unnecessary" article and sharply limit the allowable ones. The first two categories are not desirable to reduce.

Rapid cost reduction

Optimization of expenses at the enterprise by fastpace is possible as a result of a number of activities. In order to effectively reduce costs, management must determine what is being saved first.

1. Save on materials for production and raw materials. The ways to optimize costs can be different. Reviewing contracts with suppliers to obtain goods at a bargain price is the most effective way to reduce costs. Also, suppliers can offer postponements for payments, which will give the company the opportunity to collect the necessary amount without obtaining additional loans.
2. Analysis of transport costs and optimization of thisexpenditure. In addition, you can reduce the cost of electricity, telecommunications. The transport department can be provided for outsourcing, and then go to the logistics center, which will make a program to reduce transportation costs. To reduce the cost of electricity controlled by its consumption, monitor the level of illumination in the dark, install energy-saving equipment. Reducing the list of employees who are put in corporate mobile communications will significantly reduce costs. You can negotiate with a mobile operator or a telecommunications service provider on entering into a corporate contract with favorable terms.
3. Reduction of staff and reduction of FOT. Outsourcing and freelancing effectively reduce the cost of payment to staff, and recruiting companies or the internal recruitment department will help replace inefficient employees. For example, it is not necessary to have a cleaner in the state. The staff on outsourcing will save up to 20% of the payments per employee.

Another option is cost optimization throughreduction of wages, but the provision of social benefits: expanding the list of conditions for health insurance, the provision of staff at the expense of the company or free coffee in the machine. Studies show that investing in this case will be profitable in the long term, as it will increase the loyalty of the staff.

Systematic abbreviations

As follows from the name of this optimization method, its essence lies in carrying out periodic measures aimed at reducing costs.

1. Investment management. Long-term investments should always be carefully justified. In order for the company to acquire new, more efficient equipment, the interested department should argue what will be the benefits for the company when this project pays off when it starts to bring it. The introduction of new competitive technologies helps the development of business. However, when deciding to buy something, management should remember the main goal - reducing costs.
2. Procurement management. It consists in the periodic search for new suppliers that provide quality goods at more favorable prices.
3. Business Process Management. “Sudden management”, so inherent in our country, greatly affects the principles of doing business. From the point of view of new techniques, when organizing business processes, it is proposed to look at production from the side of the buyer. Analyze the process. The company manager needs to ask himself whether the buyer will pay for it? The client does not want to pay for the movement of goods, downtime, re-equipment of production without changes, improving the product. Consequently, such expenses need to be either reduced as much as possible, or completely disposed of.

Optimization rules

Making an action plan for optimizationcosts, it must be remembered that a situational solution to a problem is not always the best choice. Cost reduction is a routine job that should be a good habit every day.

Observing the rules of optimization, you can achieve the maximum effect with the least losses.

1. Costs do not always need to be reduced; more often they need to be managed efficiently. Sometimes, in order to reduce total expenses, it is necessary to increase the amount of expenses in a particular area.
2. Costs are minimized for best results. The efficiency rule says that one unit of costs must necessarily ensure the maximum result.
3. There is always a cost, be it action or inaction.
4. In matters of cost, there are no trifles. Let the company employees be angry about the report on the use of the third dozen pens for the month. But having got used to the careful attitude to trifles, as a result they will be able to see an increase in salary or an improvement in working conditions.
5. The desire to minimize costs is not always useful. The optimum may be a slight decrease in costs and maintaining them at the required level.
6. Optimization of budget expenditures is impossible without financial investments.
7. There is a type of expenses that allows you to avoid even greater losses. These include insurance, hiring security, installation of alarms, improving product quality.
8. All employees of the company should be included in the process, but everyone should have their own task.
9. Caution is never superfluous. A thought that has slipped in your head or a suspicion that has emerged as a result of reading the report, makes you analyze the indicators more deeply and almost always lead to a decrease in expenses.
10. Cost optimization should be carried out continuously. New items of cost affect the company's profits. Appearing suddenly and suddenly disappearing unnoticed, they can cause significant damage to the enterprise budget. Tracking expenses should be a mandatory task, reporting on the implementation of which is submitted to the general management of the company.

Optimization of income and expenses - procedures that go hand in hand. Uncontrolled expenses will not bring profit to the company, and profit growth is directly related to cost control.

Confusion in terms

The program of cost optimization, compiled by the financial department, often contains items that do not apply to costs.

To make the most effective program, the management team must understand the difference between the types of costs.

For example, cost control based on P & L (P & L) will not be considered cost management.