KPMG: Cost savings key in 2009

Organisations across the Western Cape have been integrating cost optimisation—also known as cost-based downsizing—initiatives into their 2009 strategic objectives, KPMG said on Wednesday.

This followed a survey performed by KPMG among large organisations in the Western Cape, with the aim of identifying their cost optimisation agendas.

“Cost optimisation is a key focus for everyone. It is, however, about answering the ‘how’ questions,” said Hilda Mulock Houwer, head of markets in Cape Town.

When asked what approach management followed, not a single preferred approach arose.

The survey found that organisations often worked on a combination of approaches and most initiatives focused primarily on short-term objectives.

“As pressure increases from executive management, line managers tend to concentrate on cost savings that are readily achievable in the short-term without taking the long-term agenda and impact into account,” KPMG said.

These short-term initiatives included the realisation of cost savings in the procurement space (85 percent), process optimisation (80 percent), supply chain optimisation (55 percent) and cash management (55 percent).

The investment in long-term strategic objectives such as shared services and new technologies were not considered widely as possible cost reduction initiatives, the survey found.

The lack of excess cash and increased difficulty in obtaining additional credit might prevent organisations from opting for long-term strategic initiatives that usually required initial capital investment.

“However, the survey does not indicate that organisations are moving into blind panic as the revenue side of the business continues to receive attention.

“All participants have explored, or are exploring, options to increase revenue in 2009,” KPMG said.

While organisations still needed to focus on short-term benefits to obtain acceptance from all their stakeholders, this should not be done at the expense of a strategic, long-term cost optimisation agenda preventing the development of sub-optimal solutions, KPMG said.

The survey also revealed that three quarters of Western Cape-based organisations only realised 80 percent of their intended cost savings, which was in line with international KPMG research.

“This outcome suggests room for improvement,” KPMG said.

The cause could not be the management focus and commitment as all participants defined this as a critical success factor, the survey suggested.

Also, 70 percent of the organisations mentioned the monitoring and adjustment of results as a success factor.

“It is, in our belief, that some critical success factors are not seen as key.”

This included factors such as communication to employees, the use of innovative ideas and clear roles and responsibilities.

“A clear understanding of the case for change, the interdependencies between the various departments and a true understanding of the cost drivers is crucial.” KPMG said. - Sapa

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