Understand and control the Cost Drivers. Much has been said and much is being said about costs and cost control. Yet as you look around after four years of economic hardship and no end in sight, the levels of national, corporate, company and personal debt is at levels which the average mind just cannot take in. At least, mine can’t. It’s as if we haven’t learned a thing from history. The dot com boom and bust of the nineties surely taught us about costs, and yet in less than 10 years many people and companies in the world have created even bigger problems- maybe problems that are so huge they can never be fixed. A good way of looking at cost is by identifying the drivers of cost in your company. It’s not just the actual cost, fixed or variable, but what actually drives and creates that cost. If you understand the drivers of cost you’re better placed to control cost. This is especially important when you’re trying to grow your business or recover previous lost business and have a significant business growth plan you’re trying to achieve. In the same way that your customers look at the cost you charge for your product/service and try to assess the value of it, you should do the same. Is this worth the money I’m going to have to pay? Will the cost recur? As I sell and develop services are there inherent costs? Will these costs drive other costs somewhere else in the business. A good example is quality – or more precisely the Cost of Poor Quality (CoPQ). As you correct errors, poor quality, it costs you hard cash, time, and negative customer experience. So poor quality, or good not great quality will be a cost driver. It will not appear on your balance sheet or statement of accounts directly, but your margin and bottom line will be negatively impacted. Don’t borrow money unless you have a clear project in mind, with a defined pay back period and a high probability of success.
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