Business Planning and Cost Reduction: Finding Cash to Fund Big Plans

It was ever thus.  As soon as we return from a summer where we’ve all tried to grab a break the business planning season is upon us.

After 18 months where we have had to deal with ongoing uncertainty, it would seem – fingers crossed – that we are returning to something like stability.   It’s time to get back to longer-term plan, strategic planning.

A significant feature for every business and functional leader will be the harsh reality of economic conditions.   Already we can see that investment cash will be harder to come by than pre-pandemic:

Business investment is forecast to decline by 2.5% this year. The damage done to firms’ finances by the pandemic, a more onerous tax regime and concerns over the potential for future covid restrictions are expected to weigh heavily on investment intentions, despite the introduction ofthe super-deduction incentive. 

Consequently, business investment is forecast to remain 5.4% lower than its pre-pandemic level by the end of the forecast period in Q4 2023.

“It is concerning that business investment looks like being the weak point of the recovery because it undermines the UK’s ability to raise productivity and increase our long-term growth prospects.”

Suren Thiru, Head of Economics at the British Chambers of Commerce

Taken from: https://www.britishchambers.org.uk/news/2021/09/bcc-forecast-business-investment-set-to-be-left-behind

Over and above a shortage of investment cash, everything is becoming more expensive.   A variety of bottlenecks in 2020 and 2021 have pushed up the price of key goods and had a knock-on effect across the economy.  We’re seeing rises in energy costs which are eye-watering and it is already hitting the headlines.  As pent-up demand is released this could drive prices further.   Inflation is now a concern – with a forecast peak of 4.0% in Q4 2021.

In addition, almost every business has had to spend money in the last two years reactively just to keep working.  Whether it’s spending on kit to enable remote working for staff or tactical switching of suppliers to overcome shortages or delivery time-lines, there’s a great deal of new costs that have been incurred.

All factors that make cost reduction and improved procurement practices essential to enable effective delivery of strategic plans.    Cost reduction returns cash to the business that can fund strategic initiatives.

Improved procurement practices support cost reduction programmes.   They also help organisations to deal with external pressures.   Attitudes to firms’ impact on the environment have hardened further over recent years.   Control over the supply chain and greater assurance from suppliers will be required to continue to live up to consumer and stakeholder expectations.

We recommend making cost reduction a key tool in your armoury for delivering your strategic and investment plans.

Five Steps to Success:

1. Strategy First – have a clear view of vision and ensure consistent understanding across the organisation
2. Align Costs to Strategy – differentiate the strategically critical ‘good costs’ from non-essential ‘bad costs’ (a topic we discussed in detail in our Focus on Costs Programme)
3. Aim High – it’s not merely about the consumables.  Use technology, innovation and new ways of working to optimise the cost base
4. Set Direction and Leadership – make cost optimisation a strategic business transformation programme
5. Create a Culture of Cost Optimisation – embed ownership, incentivise continuous improvement

If you have any questions or would like advice about incorporating cost-saving and procurement best-practice into strategic planning (or merely want to discuss how these concepts could be applied) please do not hesitate to contact me.

Jonny Michael

CEO JMCL Consulting Limited