Finding Costs Framework
Internal / External |
Cost Area |
Type |
Functional |
Cross Functional |
End to End |
|
|
|
Functional owned functional benefit |
Jointly owned joint benefit |
process owner owned - shared benefit |
External - Customer |
Elimination |
Eliminate non-required process / service |
|
|
|
Internal |
Simplification |
Process waste removal |
|
Simplify Process X |
|
|
Productivity |
Resource Productivity |
|
|
Increase productivity on process W |
|
Negotiation |
Resource unit costs |
|
|
|
External - Supplier |
Elimination |
Eliminate supplied services |
Stop buying Y |
|
|
|
Negotiation |
Reduced unit cost of supply |
|
Re-tender Z |
|
|
|
Service Outsourcing |
|
|
|
The table above is a useful matrix for identifying and
prioritising areas of cost in the business that can be removed. It
moves through the following areas
- External Customer - these are services that are provided to
the customer that they do not value or use. This might inlcude
some packaging, reports, etc
- Internal simplification - these are costs associated with
wasteful processes, where application of lean techniques can
identify and remove costs (and improve service levels)
- Internal productivity - these are costs associated with
internal resources; people, machines etc, where their
utilisation is not optimised. This can include waiting time, but
also incorrect resources e.g. expensive people doing less
expensive jobs, or over spec'd machines and vehicles
- Internal - resource costs - this is expenses and other
people associated costs that can be reduced
- External elimination - this is stopping purchasing items
that are not required, or are over spec'd for the job.
- External negotiation - this is the renegotiation of prices
for delivered services into the business
- External outsourcing - this is the intelligent outsourcing
of activities where cost (and quality) benefits can be achieved
Each of these can be assessed functionally, cross functionally
and across end to end processes to identify different areas of cost.
Once the opportunities have been identified they are prioritised
using a cost / benefit matrix and projects established to drive out
the costs.