https://www.youtube.com/watch?v=f17b1Cx174c
“Cost analysis is a very important issue for companies today. We are all concerned, to some extent, with understanding what is happening with our results and how to steer them in the right direction,” said Dr. Norma Pontet—professor of managerial accounting and academic coordinator of the graduate programs in finance at the School of Graduate Business Studies (EPN) at Universidad ORT Uruguay
“In good times, when the economy is growing, nobody thinks about costs. When the market is booming, we focus on selling, and organizations concentrate on sales strategies. When we need to find solutions because we’re not selling as much as we’d like, that’s when we start thinking about costs,” Pontet added during the conference “Business Turbulence and Cost Analysis.”
The event, organized by ORT's EPN, was held online on Tuesday, April 27, 2021, and was part ofthe Management and Business Lecture Series.
Understanding the structure
The expert emphasized the importance of understanding the current situation, as well as the organization's structure, in order to analyze costs.
If you decide to make cuts, it is advisable to target non-critical areas and plan how they might eventually be restructured. In that regard, staff should be the last to be cut. As much as possible, the expert recommended focusing on eliminating variable costs that do not affect the product and/or service quality.
The following questions may be helpful in understanding the organization’s structure: “How do costs behave within the organization? Is it a service-based organization? Are there significant fixed costs associated with facilities or infrastructure? What percentage of total costs do fixed costs account for? What percentage do variable costs account for? Are they truly 100% variable?”
“I need to understand my cost structure. I need to examine it from different angles and understand how it behaves. By doing this, I can identify opportunities to adjust and/or reduce costs within the organization.”
New Perspectives
“Cost analysis is about laying opportunities on the table, renegotiating contracts, evaluating new service providers, and identifying elements we hadn’t seen before that were previously hidden. It means taking a step back and looking at the company from a different perspective,” the scholar noted.
When making decisions, “it’s important to understand where the organization wants to go and ask ourselves whether what we’re doing makes sense, analyzing whether we can do things differently, and considering whether it’s possible to eliminate unproductive processes. For example, we should ask ourselves: Why do I have a warehouse? What if suppliers handle the storage? What if I outsource it and have a third party manage it?”
“It’s not about cutting costs just for the sake of it, but about generating more profit with lower expenses. We can consider, for example, which features of the product or service add to costs without creating perceived value for the customer. We need to focus on creating a revenue-to-cost ratio that leads to better results. This will require an internal assessment. We must understand that cost reduction allows for greater flexibility to capitalize on market opportunities.”
“The crisis will pass,” Pontet said, recommending that people not only focus on the present but also consider how the changes made during times of turmoil might affect the organization’s future.