Over the next week or so, I will be sharing my views on the six most common mistakes people make when reducing costs. Starting with number 1: not knowing exactly how much your company IS spending. In any business it is highly beneficial, as well as extremely convenient, to measure the costs of each and every department separately. The thinking behind this is, by making individual departments fully responsible for their own costs, you are pinning responsibility directly on those who are spending the money and inflicting these costs upon the company. Implementing an overall strategy of measuring how much you spend by line is vital, as it allows you to fully understand the true spend in each area and to negotiate accordingly with your suppliers.
The second mistake made when reducing costs is not knowing how much your company SHOULD be spending. First of all, what do I mean by the “correct” amount? I have heard many clients argue that it is subjective and claim that the amount they are spending is the right amount for their company for various short-sighted reasons. They might claim that they don’t mind spending £35,000 on their annual electricity bill because they have always done so. A lot of businesses harbour a “Because we always have!” attitude. A company might also be happy with their high costs because they see it as being relatively cheap compared to some of their other costs.
Our last mistake made for this week is not knowing exactly what you want to buy. The large mistake here is the lack of communication between different levels of the business. For example, imagine that I have gone shopping because I need to buy a new wallet. This may sound like a simple enough task, but there are a multitude of things I have to think about to ensure that I come away with a wallet that satisfies my needs. To list a few: colour, size, and material. Now imagine that someone else is going to buy this for me. So something that at first seems relatively straightforward actually requires a fair amount of information. If you translate this to something more complex, for instance an extensive cleaning project of a large school, you can see the importance of knowing exactly what you want.