United Kingdom

Details

  • Service: Advisory, Management Consulting, Insights
  • Type: Business and industry issue
  • Date: 07/07/2011

The Cost Boomerang 

  

Costs that were only recently eliminated as a matter of survival are starting to fly back into the business at an incredible pace. Few companies believe their recession-driven cost measures to be fully sustainable during times of growth; and a significant number don’t have access to the right information to make sustainable cost efficiency decisions.

 

Whilst growth prospects remain uncertain across most European countries, many organisations are facing a real risk that mounting costs will quickly erode their already tight profit margins and eliminate bottom line growth.

    Across the board, costs are widely expected to creep back into the business.  We urge companies to look at their organisation in the same way a prospective investor would, which in our experience is one of the most successful techniques to identify, quantify and prioritise potential value creation opportunities.

     

    • Respondents expect a 6% increase in their cost base this year
    • The majority of organisations have not implemented the more radical and sustainable cost efficiency measures
    • Smaller organisations are 3 times more likely to have discounted unprofitable business lines than their larger peers

 

     

    Where will costs boomerang back into the business? The simple answer is everywhere. Many pointed to the cost of finance and increasing headcount, suggesting a growth strategy; others cited external pressures such as salary inflation. Understanding the sources of potential cost increase is a critical first step in creating a more sustainable cost environment.

 

  • 58% expect the cost of finance to be a very or quite significant source of cost increase
  • Salary inflation is also expected to be a challenge by 55% of respondents

 

     

    The majority of cost efficiencies made during recession are not expected to be sustainable. In many cases, executives are now finding that the cost of rebuilding, or reinitiating projects may actually cost more in the long run than was saved through their cost cutting measures.  To achieve sustainable cost efficiency, businesses will need to take a different perspective on their organisations.

     

    • 93% of costs made during the recession are not expected to be sustainable
    • 34% agree that, with hindsight, the cost of rebuilding capability will be greater than the costs they saved with cuts

 

     

    To create truly sustainable cost-efficiency measures, companies must focus on providing accurate and timely cost information at an appropriate level of detail to support decision making.  Based on our research, there is still some room for improvement across the board. 

 

  • 77% of respondents have plans to significantly change their cost base in line with their future growth strategy
  • Only 66% believe that accurate, timely cost information is avaliable at an appropriate level of detail to the Finance community
  • Just 56% agree that there is clear visibility into the component parts of the cost base.

 

     

     

    The Cost Boomerang - home

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