4 Tried and Tested Cost Optimization Strategies For Your Business
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Organizations and managers have always struggled with long-term cost optimization. Various practices like Kaizen, time and material contracts, offshoring, and activity-based costing have been explored. The goal each time was to maximize productivity and profitability while minimizing costs. While these approaches worked like a charm in their time, what did the job then might not work today. The way we do business has changed, and our strategies for maximizing business potential need to adapt too.
Done right, effective cost optimization can not only help you reduce costs but also maximize business value. According to Deloitte’s 2024 MarginPLUS study of nearly 300 senior business executives, there is a definite shift towards strategies that focus on fewer but more specific aspects of business that can improve business margins.
At ProHance, we have years of experience helping organizations streamline ongoing operations through resource utilization tracking, workflow automation, productivity measurement and much more, while finding new ways to be more cost-effective. Let’s consider some of the more common areas where businesses could reduce costs and increase profitability through cost of delivery optimization.
Effective Utilization of Existing Resources
An underutilized resource might indicate that a project or department is overstaffed. However, while some team members are idle, others could be saddled with more work, creating an unbalanced workload distribution.
Uneven workloads on a project are not just unfair but they can also be financially draining. An ineffectively used team is a huge cost drain on any organization, and such projects are not as profitable as a business would like them to be. Furthermore, an overloaded individual will experience faster burnout and the team will suffer from turnover and acquisition costs over time. As any responsible manager knows, hiring and training new team members is a costly endeavor.
One effective way to improve productivity and reduce costs is to maximize output from all existing resources and spend less on hiring and training. Workload is often based on perception rather than data. With the right numbers, it is easier to ensure workload is equitable, thus lowering attrition rates of overworked individuals. Finally, identify and provide opportunities for learning and development to engage teams and encourage them to further their career growth within the organization.
Better Management of the New Contingent Workforce
Since the pandemic, the way we work has changed significantly. Companies have been forced to relook and revise their working models and more people than ever before are opting for the hybrid work model.
In addition, finding the right talent is also proving challenging, and many organizations are turning to other geographies to fulfill their resource requirement. Earlier contingent workers helped reduce labor costs and complete tasks that onsite workers would not wish to do. However, with the advent of digitization, many businesses are looking at contingent workers to take on greater responsibilities and drive innovation within the organization.
While contingent workers are a great way to fill gaps in talent requirements, this does pose a set of different challenges for organizations. One of the key concerns with the hybrid model is ensuring high levels of productivity. Identifying how many people to hire for a project isn’t always obvious and there is a possibility of over- or understaffing, creating a resource management issue. This lack of visibility and predictability of outcomes in remote working even affects costs as there is a possibility for timesheet errors, and therefore over-billing.
Optimizing Payment Costs
Payroll is one of the highest company expenses, and the lack of an efficient system that leverages data like attendance, overtime, etc. can not only affect the profitability of a company but also impact its successful operations. This is more noticeable in industries that are more labor-driven.
One of the first steps to optimizing payment costs is identifying, verifying, and plugging payroll leakage. This is any accidental or avoidable spending caused due to incorrect or improper handling of employee data.
There could be many factors that lead to this, but typically the cause is incorrect time tracking, unaccounted absenteeism, excessive or unapproved overtime, etc. According to Deloitte, payroll leakage can cost employers 2.5% of total payroll expenses.
Leveraging Workflow Automation
Today technology has made inroads into every aspect of work and life. Organizations that have embraced the change are making progress much faster than businesses that are yet to adopt automation into their business operations. A company that isn’t agile and quick to make this transformation may soon find itself out of the running.
One of the biggest advantages that automation brings to the table is better collaboration, enhanced efficiency, improved customer experiences, and reduced costs. Automation can take over repetitive, manual tasks. This not only helps reduce the possibility of errors but also frees employees to focus on more business-critical tasks. With access to data in real-time, teams can collaborate better and faster, leading to enhanced productivity and improving the overall efficiency of the business.
In addition, when workflows are integrated, it is easier to spot redundancies and overlaps in the process, saving the company excessive expenses. It is also easier to keep track of paid software usage via an asset optimization module.
Read Also:- Strategies To Improve Work Efficiency
Cost Optimization: The Foundation for Business Profitability
Regardless of industry or business process, an organization will always seek ways to optimize costs. By identifying and understanding the common areas that can benefit from cost optimization, a business can streamline its processes and aim for more long-term sustainability.
Smaller teams or projects can track resource utilization with the help of a simple Excel spreadsheet. However, this can prove challenging for larger organizations. At ProHance, we have the years of experience to help large organizations such as yours address these issues and provide you with meaningful solutions. Connect with us to understand how our proven expertise in resource utilization can help you streamline payroll and other Opex costs.