Cost Optimization Overview in General

A Brief Note                                                           

Finding an alternative with the most cost effective or highest achievable performance under the given constraints, by maximizing desired factors and minimizing undesired ones. Cost optimization is considered when either the set targets are achieved but at a higher cost or targets achieved but there is a strive/need to do more with less cost.

Why cost optimization?                                        

The approach that is being used need to bridge the gap between the current and the targeted budget, 
The solution starts with changing our thinking around the problem. We have to be innovative

Benefits of cost optimization:

Cost optimization might result in reallocation of funds so that an investment leads to an greater saving.
It is important to recognize that in fact, all cost cutting requires an investment. Even the simplest cost cut requires some level of analysis and human effort. In extreme cases, you may even make a decision that reduces revenue, in order to obtain an even greater reduction on expenditure.

Steps to be followed                                              

1. Set objectives

• Are we aiming primarily on cutting cost or are we looking for ways to cost effectively invest in key areas to generate greater returns?
• Set a scope
• Are staff cuts and organizational changes part of the mandate or are they off limits?
• Are we looking for any improvements regardless of their pay back or are we just focused on the “big ticket” items?
• Set a team (no new members as they would not have  a better understanding of the current situation)

2. Techniques 

• Six thinking hats(Edward de Bono)

• Brain storm - Classify the ideas into ORGANIZATIONAL, INFRASTRUCTURE & OPERATIONS, APPLICATIONS , PROGRAM MANAGMENT

3. Classify ideas 

• Using the classification framework, we can now start to filter the ideas and select those with the most potential.

4. Detail ideas

• For each of the ideas, understand the attributes such as the potential benefits & risks , the timelines & resource requirements & the financial pay offs
• Select those final few ideas based on value measure that will become the focus of your cost optimization program

5. Develop Plans

• Once the projects are identified, develop plans for them

6. Implement & Review

• Once the selected few ideas have been implemented, review them for the desired results
• However, do not forget to next consider those ideas that were initially not filtered
• Once all the ideas have been exhausted, start again with brainstorming

7. Benefits

• Applying these simple tools to your program will not only deliver significant financial benefits but also will empower & motivate your team that was committed to making your cost optimization program a success