COVID19 brings cost containment 2.0

Ok what is COST CONTAINMENT ? Cost containment is the business practice of maintaining expense levels to prevent unnecessary spending or thoughtfully reducing expenses to improve profitability without long-term damage to the company. Cutting expenses in ways that decrease quality or reduce marketing efforts to bring in new business can lead to a company's demise and are not examples of a cost-containment strategy.

In this second Openscale blog, we are going to put together information related to the importance of cost containment and how done correctly, cost containment will keep the spending in check while avoiding to affect company performance and expenditure.

1. Cost-Containment Practices Rather than waiting for expenses to get too high, some businesses implement cost-containment measures that keep expenses in check. This might include limiting marketing expenses to a certain percentage of sales, capping labor spending per month or setting a daily per diem for travel expenses. Conduct monthly reviews of these policies to determine if spending limits reduce opportunities to improve sales, revenues and profits.

2. Cost-Containment Practices Rather than waiting for expenses to get too high, some businesses implement cost-containment measures that keep expenses in check. This might include limiting marketing expenses to a certain percentage of sales, capping labor spending per month or setting a daily per diem for travel expenses. Conduct monthly reviews of these policies to determine if spending limits reduce opportunities to improve sales, revenues, and profits.

“The first thing that business people do is create sales, right? Because revenue is key to success. The second is cost-containment. For many businesses, an unobstructive cost-containment intiative has become the preferred alternative, and it does fit the bill”

The economic impact of COV19 will be minimized by strategic Cost-Containment initiatives

In an economy that is consistently facing massive levels of disruption and numerous changes, cost containment is becoming an increasingly prevalent topic among business owners, executive teams, and management professionals. “Marginal” savings are no longer considered to be relevant when it comes to business survival and success. Today, cost-containment strategies are based on specific resources that have the ability to completely sharpen the operational capabilities in such a manner that businesses are enabled to keep pace in an ever-evolving and extremely fast-paced marketplace. In this second #openscale post, we will expend on various cost-containment strategies that will result in optimal profitability for the businesses that elect to utilize them within their company.

The Perfect Storm That Results in Massive Damages

In today’s economy, businesses are facing what many are referring to as the “perfect storm”; unfortunately, this storm is one that results in massive damages. The culprits for this storm include low yields on investments, soft rates, and an assortment of new regulations currently targeting businesses across the nation. Openscale has concluded that, in the year 2020, business models and the way that companies compete will look, feel, and be much different than what is currently occurring. The impact that new technologies will have, the shift in customer expectations, and the implementation of cost-containment strategies in businesses today will all have a positive impact on the scene, as we advance into the future.

Rethink Your Business Strategy and the Costs, Thereof

The first strategy to cost-containment is actually rethinking your current business strategy and the costs associated with that strategy. In years past, the ability of a business to deliver a form of strategic change and implementing the operational capabilities that are needed to deliver that change has always been extremely difficult. Now, though, businesses have the practical means and the compelling drivers to ensure optimal cost reduction. In order to create change and contain costs, your business must consider the following:

1. Regulation – Regulation includes the requirements in terms of capital, the costs associated with compliance, and the scrutiny of conduct within a business – which is, oftentimes, quite intrusive.

2. Market Conditions – Rates that are in decline, expense pressures, and poor investments are all creating complications that result in lower rates of profitability.

3. Customer Expectations – Today, customers are exceptionally demanding. They have high expectations when it comes to value and service. Additionally, given the digital revolution, they are all about instant gratification.

In order to contain costs, you must ensure that your business is working to rethink strategy. The new strategy should be focused on differentiating positive costs from negative costs. The goal should be to get close to your customers, meeting their expectations, but doing so in a non-aggressive manner that allows your business to reduce costs and increase profitability.

Identify Unnecessary Expenses

Regardless of what type of business you are part of, there are likely many unnecessary expenses. The second cost-containment strategy is to ensure that you identify these unnecessary expenses. The best method for succeeding in this endeavor is to consider the long-term goals of your business. This will aid in eliminating waste. However, if you discover waste, try to outline why it is present. Who made the original purchase or created the initial expense, and why? You should then contend with that which you have discovered.

Determine the Factors for High Costs

The third strategy for containing costs is to determine the factors associated with the high costs of your business. Examples of these culprits include overpaying suppliers and not identifying and comparing prices among suppliers at your disposal, employee and/or customer theft, and shrinkage. In order to successfully eliminate high costs, you may install a surveillance system or utilize employee background checks, while striving to increase morale among those that are part of your company. If shrink is an issue, you could consider revamping your stock procedures, creating inventory lists, and discovering profitable ways to deal with damaged items.

Openscale's Conclusion

As the COVID 19 virus has brought undeniable losses to businesses across the world, the survival and the overall success of your company will be heavily dependent upon an internal transformation. This transformation should focus on your competitiveness capabilities and the underlying costs associated with the base of your business. You must think in a highly strategic fashion and in a radical fashion. Align the costs of your business to the strategy of your business. You must determine the factors and components of your business that is adding value and make appropriate adjustments to eliminate the rest. By incorporating the strategies outlined in this brief guide, you are sure to reach new levels of financial success in your industry. Help is there.

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