Insight

Three Levers for Optimizing Cost

A comprehensive solution-based approach

A global financial downturn appears to be imminent, driven by high inflation, the Russia-Ukraine war, volatility in energy markets, and supply chain disruptions. To prepare for a downturn, CFOs should take a proactive role in analyzing cost structures, designing cost-cutting programs, and identifying cost-reduction targets.

Three levers for optimizing costs

KPMG advises a thorough, solution-based approach to cost optimization based on the following levers:

1

Speed to insight and quick wins

One of the leading approaches is to identify key opportunities and quick wins that develop momentum and are self-funding. The most effective initiatives for rapid cost optimization often involve areas related to working capital and spans of control.

Identifying these opportunities and quick wins is usually not as simple as focusing on a few cost items or reducing costs by 10 percent across the board; CFOs and their teams need to focus on targeted cost reductions based on detailed analysis and data-driven insights. Key KPIs and metrics can help track the value of cost reductions, with quantified performance gaps assigned to each discrete opportunity. These include cost reductions for time allocated for transaction processing, invoicing, AR receipt processing, report generation, external audit fees, and close cycle times.

2

Integrated strategies

CFOs need integrated strategies for cost reductions, bringing together non-financial data, business planning goals, and near-term operational outcomes. These strategies require cross-functional alignment with other areas of the business to ensure that cost reduction activities and goals are appropriately communicated.The finance team can then identify and prioritize initiatives that support these elements. This includes summarizing the structure of cost-reduction initiatives, determining their impact on goals, quantifying the level of effort, and estimating the duration of initiatives.

3

A structured framework

Successful cost optimization can involve a structured framework that includes the following steps:

Rapid assessment, based on a thorough, up-to-date understanding of finance processes, technologies, and operating capabilities. Finance teams can identify operating model challenges and conduct deep-dive interviews with members of internal functions and shared-services groups to identify further details.

Refined operating modeladdressing the challenges and inconsistencies identified by the initial assessment. If required, finance teams need to refresh benchmark analyses to reflect current conditions and identify areas of potential risk associated with the future-state operating model.

Initiative definition based on actions required to implement the future-state operating model and organizational structures. Team members need to perform comparisons against existing initiatives to eliminate the risk of duplication while also estimating savings and costs associated with new initiatives. 

Further development, supported by reviews with finance leaders, includes outlining the specific outcomes for each initiative, the documentation of key activities, dependencies, risks, and resources.  Equally important is the identification of specific cost savings, level of investment, and return on investment for each initiative. At this stage, clear ownership of initiatives should be documented to encourage engagement with the cost optimization program and promote success.


How to get started

CFOs can start their cost-reduction journey by asking themselves questions like these:

  • Where is the organization most and least productive?
  • What work is foundational and what may not be essential?
  • How can we build a resilient organization that can weather an economic downturn without compromising future success and long-term growth?

 

Contact us

Douglas Baker

Douglas Baker

Principal, Advisory, Finance Transformation, KPMG US

+1 617-988-6311
Ivan Teodorovic

Ivan Teodorovic

Principal, Advisory, Strategy - COE, KPMG US

+1 415-793-6507
Julie Fults

Julie Fults

Director Advisory | Finance Transformation, KPMG US

+1 312-665-3847
John Whalen

John Whalen

Director Advisory, Finance Transformation, KPMG US

+1 212-954-4327