cost cutting

Under cost-cutting means all measures as part of the cost management of companies and public administration , aimed at reducing the overall costs are targeting.

General

A profit increase can be achieved either by increasing sales revenues with constant costs or by reducing costs with constant sales revenues. Cost reduction measures as part of cost management represent a sub-goal of profit maximization and should give companies cost advantages in competition . However, cost reductions can also occur without conscious measures, for example by lowering procurement prices due to unexpectedly lower raw material costs ( English windfall profits ). Often cost reduction measures are the reaction to corporate crises and then become the main task in the context of a restructuring , but companies or public administration should permanently install cost reduction programs as part of cost management in order to prevent such crises.

Process organization

The process organization of the cost reduction is divided into the following main phases:

• Search phase : A preliminary examination of the total costs examines the question of whether a cost reduction is possible and desirable and whether there are legal , collective bargaining , social or internal barriers to it.
• Analysis : It determines the actual state from the cost type and cost center accounting and builds on this a weak point analysis . This enables a cost reduction catalog to be drawn up, the main objective of which is often to reduce fixed costs .
  • Freeze or cut wages and salaries ,
  • Cap or cap of the budget ,
  • Consolidation of locations ,
  • Reduction of the vertical range of manufacture , outsourcing ,
  • Concentration on the core business .

In parallel to the cost reduction catalog, a cost reduction target is drawn up. The cost driver analysis, value analysis and target cost calculation can support this .

• Realization phase : A schedule divides the individual implementation steps into individual phases, the fulfillment of which is monitored by a responsible person.
• The aim of the control phase is to monitor the success of cost reduction through a target / actual comparison .

Goals and consequences

If the output remains unchanged , cost reductions that have occurred lead to an increase in productivity , which in turn can lead to improved profitability . In most types of company, personnel costs are a significant cost factor in the context of cost reduction programs, so that the improvement in personnel intensity is often accompanied by layoffs. Therefore cost-cutting measures are often associated with layoffs - in extreme cases with mass layoffs . A company can maintain or achieve its cost leadership through consistent cost reduction measures . This strategy can be justified with the observation that a company can still generate profit after a price war even if all other competitors have fallen into the red. Cost leadership is often a prerequisite for price leadership . Cost reductions result in an earlier break-even point . Excessive cost cutting can affect the company's productivity , product quality or value creation .

Web links

Wiktionary: cost reduction  - explanations of meanings, word origins, synonyms, translations

• Onpulson Lexicon on Cost Reduction

Individual evidence

1. ↑ according to Peter R. Preißler, The 100 best checklists for reducing costs in sales , 2009, p. 28 f.
2. ^ Michael E. Porter, Competitive Strategy: Techniques for analyzing Industries and Competitor , The Free Press, New York, 1980, ISBN 0-684-84148-7