Financial management – An essential part of a healthy company

Financial management – An essential part of a healthy company

Financial management is essential for companies to survive. By planning, organizing and controlling financial undertakings you create room for growth.

A prerequisite for optimizing your costs is to understand the current situation as well as how the cost structure of where you are heading will look like. Four key points to remember when assessing costs:

  1. Establish the cost baseline.
  2. Identify and assess opportunities and risks. Analyse and break down spend.
  3. Develop a strategy and a roadmap. Identify where to start and your end goal.
  4. Track the benefits to understand if you are heading in the right direction.

To understand your cost structure and identify addressable spend it is common to look at what costs are fixed, semi-variable and variable in the short, medium and long perspective.

An example of fixed costs, only addressable in a long perspective, is a contract written in a 5-year period. A variable cost in short term is for example to stop buying consultant hours. In order to get fast results and create momentum it can be important to find which costs can be eliminated today.

By setting up a roadmap of short- and long-term cost initiatives you can visualize a timeline stating actions that are most important to start with as well as in what order cost optimizing activities should be performed. More often than not this is a timely and complex task but, quick improvements could be achieved by finding out the following:

A roadmap of activities of cost optimization

Drive the change within line organization

Permanent cost savings are best initiated and driven by the operational business with strong support by top management. It is in operations you can optimize and/or standardize your processes. Some costs are, as mentioned previously, easier to cut while other costs are the opposite – essential. Costs linked to essential processes could, instead of being cut, be optimized.

Today, there are many administrative processes that, by definition, provide low or no value to the end customer or generate no revenue, but are still essential for the company. Usually these processes have been consolidated into shared service centres which in turn could be outsourced to near- or off-shore locations. This has been a formula for cost cutting and lowering the administrative burden on employees. Instead of taking these measures it could be more cost effective to turn to technologies such as Robotic Process Automation.

Robotic process automation is the fastest growing enterprise technology today. By using RPA, companies have the possibility to automate business processes that are many times both costly and time consuming.

There are different levels of how advanced RPA can be. The less advanced levels are nowadays mature technologies with many competing vendors. Here we can find business cases to be made where case studies have shown return of investments of RPA implementation to be between 30-200% already in the first year. The business case is not only built upon increased efficiency where the processes are executed faster. By implementing RPA in existing business systems, it also helps save costs incurred due to human errors. According to estimates from IBM erroneous data input by humans costs $3 trillion per year in the US alone. By implementing RPA, errors for those certain processes are coming down towards 0%, which of course has a positive impact in a business case.

Having a cost-optimization focus is possible regardless of organization maturity, requirements for innovation and change and improving current operations. There are many different ways of achieving this; stop doing, standardizing or re-negotiating contracts. But now we also have the possibility of applying RPA, something which has emerged rapidly in the last couple of years. If you are interested in getting more information, please don’t hesitate to contact us at Opticos.

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