There are 3 “E’s” to strategic cost management:
Management – usually the first and easiest lever to pull when quick adjustments need to happen.
Efficiency – This requires a deeper understanding on operational process costs beyond the income statement. Lean six sigma and other process improvement skills come into play.
effectiveness – These are some of the most difficult decisions to make. these decisions require understanding markets, products or customer segments where you aren’t meeting profit objective and the realizable financial impact of exiting those segments of your business. Like it or not, every business has segments of its business that are unprofitable, the trick is understanding if I exit this segment will the immediate impact of the reduction in variable and semi-variable costs be greater than the revenue given up. Often times companies make these decisions based on poor cost models and come to realize that the decisions simply ended up in passing fixed and overhead costs to other segments of the business, burdening there profitability.