Cost Management: Strategic Risk Based Profitability

History has the probability of repeating itself over and over. Usually that happens when previous lessons are either forgotten or not learned to begin with. At Armada Consulting, we can see remnants pre-recessionary financial strategies emerging as we enter the post-recessionary period. This is, of course, not widespread, but if your organization or firm hasn’t learned its lessons in risk-based profitability, history is destined to repeat itself.

Avoiding The Repeatable History

This post-recessionary environment will present every organization with both challenges and opportunities. There are just as many opportunities for growth as there was before, but you should not fall back into your old ways of expansion and spending without first considering a risk-based approach.

Many businesses and organizations are realizing that their previous cost cuts were not made strategically and while they helped in the short-term, the benefits of these cuts may not be sustainable. With the low hanging fruit gone, businesses must dig deeper to eliminate unnecessary process costs and continue moving consumption to lower cost channels. Organizations should also make a renewed effort to identify and remove their excess capacity and excess infrastructure they may have acquired during growth years.

This will require a disciplined approach to strategic cost management so that businesses can appropriately react to and adapt to future economic conditions. In other words, businesses, industry, and financial services companies should continue to refine their risk-adjusted performance capabilities. These steps will help them to compete effectively and grow in the new economy.

Strong Leaders Needed

It will take strong and committed leadership within an organization to keep from repeating the recent history. The concept of managing an organization based on a risk-adjusted performance strategy will need to be embraced in every office and department within your organization. If this concept is fragmented across departments and products it will not be successful.

Leadership must find new ways to engage the rest of the company and leverage this strategy and information proactively. This will enable growth while bringing about the right balance of risk and return. Strategy, finance, risk management, and operations must all come into alignment to change the organization’s perspective. Implementing risk-adjusted profitability is the financial exercise necessary in order to improve how effectively a company’s management can execute the day-to-day operations. Functioning this way will keep organizational focus on economic profitability rather than accounting profitability.

Strategic Cost Management & Risk Based Management

Now is the time for business organizations to take a proactive approach to structuring their businesses for economic profitability. Your organization’s success in the future will be determined by your ability to avoid previous historic mistakes.

Armada Consulting is a Strategic Cost Management firm. To learn more about how Armada Consulting can help your organization with risk-based management and strategic cost management, call Armada at (918) 856-3414 or contact us via email.

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