Cost Reduction

Ten Things to Measure

If you want to make effective and logical changes you first need
to measure where you are, and what would make the biggest
difference. Here are 10 things you should be measuring.

1. Do a Pareto Analysis of where money is being spent - and possibly

internal another Pareto within the main areas.

2. Productivity of people - if you could compare one against another you

could work out WHY some people are producing more. Remember hours
worked is not a good measure.

3. Percentage of time wasted, and on what. Is it systems, communication,

information or equipment not being as efficient as they could be? Then
work out whether investment in equipment or management time was
worthwhile.

4. Hours spent on tendering, meetings, IT problems, managing queues, duff

information, etc. Measure the costs wasted, the benefits gained, or the
potential for changes.

5. Cost of key resources per hour, and their utilisation - especially

expensive pieces of equipment or maybe even people. Utilisation (the
proportion of time spent actually being used) is often not measured, and
yet it’s vital to know.

6. Subcontractors - they might be great value but they need to be

monitored in case full time employees, or overtime, or cancellation of
the work, would be better options.

7. The effect of pricing on turnover – how much more would you sell if you
cut your prices? And how much less if you increased your prices? Do
scientific experiments with your pricing and measure the effects.

8. Income generation per department - instead of just costs. Analyse each

department as a mini-business.

9. Savings we’d make if we invested / Cost which we’d pay longer term if
we cut. What cuts are you planning to make, and how will you measure
whether you really get the benefit of them, without effects on other
areas of income?

10.Failure costs due to poor quality. We all measure prevention costs –

training, IT development, auditing, quality department, supervision,
preventative maintenance, etc. But the flip-side gets forgotten: the cost
of handling complaints, lost business, rework, warranties, management
time sorting out problems.

What systems might you need to introduce to measure these?