As many organisations are seeking to progress cost takeout initiatives, a useful reminder that, according to @Accenture Strategy, only one-third of Operations Executives strongly agree that they see the results of their cost-reduction initiatives reflected in their P&L statements.
So, what are the common challenges contributing to this issue?
- Lack of granularity: Not having a clear understanding of spend broken into categories such as 3rd party contracts by product, staff by skillset, depreciation by asset inhibits the ability to identify cost takeout opportunities and to demonstrate savings due to lack of a proper baseline.
- Not accounting for add-backs: In-transit projects, in most instances, contribute to incremental costs in terms of licenses and/or people to support newly delivered systems. Thus, it’s important to have a clear understanding of these projects and their resultant impact on the operational expenditure.
How does one address these challenges?
One has to establish a clear baseline that offers the necessary granularity of detail – by combining internal and external datasets.
In addition to the financial datasets, one needs the following additional datasets
- 3rd Party Spend broken by vendors with product-level detail and license data
- Staff data ideally enriched with timesheet detail
- Fixed Asset Register
All this data can be further enriched with industry-standard reference datasets such as IT Asset categories and IT Functional categories to aid benchmarking and cost analysis.
Combine appropriate datasets with accurate modelling to demonstrate cost takeout savings on your P&L confidently.