Common cost cutting mistakes the enterprise make

The cost has always been an essential element for any business enterprise. Cutting costs is a common way of improving financial results and remain competitive for any business enterprise.

The common mistakes enterprise, especially Small & Micro Enterprise, make while running their cost reduction initiative.

1) Lack of formal target setting process

In many cases, the cost reduction/cutting initiatives are driven by owner/leadership with some targets using some thumb rule. The structured target setting process helps using the right tool for data analysis and other related aspects. It allows setting SMART target

2) Cost-cutting should not be a rescue operation in a lousy time of business.

The enterprise generally runs cost reduction as an occasional initiative ( especially during the business's stressful time and as an ongoing structured process/program. The immediate financial gain remains the prime motive for cost-cutting; therefore remains a short term activity .Many a times you mistakenly consider cost reduction/cutting the same as cost management. Cost management is a systematic focused approach with continuous effort throughout the value chain.

3) Cost management is not a financial / accounting item

Most of the enterprise mistakenly consider the cost management program as a finance/account item. The impact/result of the cost management program can be a finance /accounting item, but the cost management program will always be an item for all involved in the value chain. Many enterprises thus do not have the participation across the entire value chain ( the function . the department, the people ); therefore, they struggle on the effectiveness of such a program.

4) Lack of knowledge of the real cost

Knowing the real cost of your enterprise is the starting point of driving any cost reduction initiative. The enterprise lack in understanding the actual cost of their operations, including product and inventory costs, general expenses and labor costs, for example, you cannot control it, let alone find ways to reduce their impact.