Nine Questions about Cost Cutting that Every CFO Should Know How to Answer
More than any other leader, the CFO needs to be the champion of game-changing cost reductions that create rather than destroy value. You should be able to answer these questions as you drive unnecessary cost out of the organization.
- What is the size of the cost reduction opportunity? Everyone wants cost savings, as long as it comes from some other part of the business. What is the real savings potential (with the turf-protecting hedging)? How fast can this potential be achieved?
- What is a realistic assessment of our cost reduction capacity? Do we as an organization have the ability, talent and commitment to achieve the potential cost savings?
- Where is the low-hanging fruit? What are the categories of cost that can be addressed quickly, with minimal effort and minimal disruption?
- Where do managers around the organization see opportunities to cut costs? What ideas do they have for cutting costs that would not be uncovered by simply looking at the financial statements or general ledger?
- What external resources, if any, will accelerate the cost reduction program? Can the cost of these resources be funded by the potential savings?
- Given your timeline for savings realization, when must the initiative begin? Nothing happens overnight, but likewise nothing should drag out. Set an aggressive timeline based on this being a critical initiative and stick to the deadlines.
- What needs to happen to get and keep the support of senior management? Many cost reduction programs fail to realize their full potential because the executive team publicly feigns agreement, but privately does not commit. What do you need to do to get and keep real support?
- Once the savings are attained how will you avoid the temptation to redirect to other spend versus dropping it to the bottom line? Saving money is the hardest thing to track and retain. How will you ensure that it is not instantly re-spent elsewhere?
- How will you communicate this to employees? Cost reductions often require employee sacrifice. Even a simple change like flying coach can be a hardship for the workforce. How will you communicate the program so it is understood and embraced?