Panagiotis Leontios

Don’t Cut Costs – Manage Them!

In Business on 07/05/2015 at 12:12 pm

costsWhen times are hard the knee-jerk reaction for many businesses is to cut costs.  Don’t do it!  Or to put it another way – don’t do it!

Before we get into this I want to give you an operational definition of costs for the purpose of this article.  Costs have several relevant definitions, costs are:

  • a payment before something can be done or acquired
  • an effort, loss or sacrifice necessary to achieve something
  • a loss or unpleasant consequence

When we look at cost-cutting we are generally looking to reduce the first, to try to avoid the second, but we often end up with the third! Why is this?  Especially when we are looking for an opposite outcome?

Cutting costs has only one direction, that is downwards, and this gives you a very limited set of opportunities.  A cost-cutting mindset is that of seeing the issue of costs as a problem – you are responding to external events outside your control and not fully taking on responsibility.  Here the individual will continue to cut the grass, even if he or she will kill off the lawn in doing so.

A successful company thrives on costs.  This is not to say it incurs costs without any consideration or thought, quite the opposite, it actually understands that you need to incur the right costs in order to grow, thrive and survive.  As such you need to be able to manage your costs.

Managing costs is about seeing potential opportunities and searching for a solution. To manage your costs you need to understand why you incur them, what they are for, and the relationships between different costs and the business outcomes you are looking to achieve, and when their impact takes place.

So how do we manage costs?  Read on for the six powerful tips.

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