Cut the right costs

A few years ago, we talked about drone attacks and changing barriers to trade, stock market turmoil over Brexit, negative interest rates, and oil price variation. Today, Covid-19 is on everyone's lips and there has been a brutal awakening to the uncertainty and risks inherent in planning and managing. No advanced analysis is required to find that the conditions for many organizations are affected directly and in the long term.

Although the consequences of Covid-19 are extreme, uncertainty and changes in the outside world will now have to be seen as a normal condition that requires developed analyzes and quick action plans. This is also an opportunity where we can expect a major change in the opposite direction. Today's situation can therefore serve as an educational example of the importance of flexibility. Either way, the importance of being able to save a lot and quickly - but above all, is highlighted. Sooner or later, and with fairly short notice, demand in many industries will return to previous levels. Then the capacity will be needed which, with the wrong action, now risks being cut away. Maybe there will be a new notch in the development that we cannot foresee today and may not affect either. It is for this future that we need to vaccinate against and scrap some of what we notice is not needed.

Budgeting in a dynamic time

A slow moving, hierarchical control model of classical cut is obviously outdated. Likewise many of the assumptions that have been made regarding budgeting, purchasing and profitability calculations. It can feel easy to save and hold back in the short term. It is more difficult to realize the right savings that give quick effect but at the same time keep the long-term value goal alive. Striving solely for resource optimization with capital rationalization and cost savings in focus, and not balancing the need for dynamics and flow optimization is easily devastating. We already see a risk of capacity shortages, for example in health care. The question is also whether all the time spent on budgeting in the autumn is value-creating or just a waste of time. Much of the force that is now deployed works without the budget as support. The fact that it is obsolete as early as mid-March does not apply to everyone, but too many to be the norm. The same applies to classic product costing and internal pricing, which is based on assumptions about volumes, demand and activities that no longer exist.

Ekan's analysis has long been that the budget process needs to be developed and separated into three different parts to become more dynamic. It is also important to meet the dynamic environment with agile and value-focused purchasing methods. A review of purchasing patterns, categories, agreements and costs will be necessary to follow a rapid pace of development while maintaining control. It is important to capture the opportunities for cost-effectiveness and savings while ensuring that those who act in one's network focus on the same goals and deliver value.

Reduce business risk by developing a control model

For the future, it will be important to have control over what can be affected, what costs are fixed and which are variable to reduce business risk. It is also becoming increasingly important to follow trends and develop dynamic governance as well as develop collaboration across organizational boundaries when availability is not in one's own hands. All in all, this means that business development of various kinds will be required. Development of control models, work with digitization and development of working methods are some things that are needed to increase the resilience to future disruptions.

Right now, there are emergency efforts such as layoffs, capacity reductions and prohibitions of various kinds of reality medicine. If we are to think long-term and not just quickly, work on efficiency and strategic cost control through the development of control processes will be necessary. Companies and institutions that want to be competitive and fast-moving when business cycles and market conditions are normalized need to be developed to meet the reality of tomorrow, which will remain unpredictable and changeable.

The press release was sent with Mynewsdesk