What is cost cutting?
Bank
(Financial institute or any other company) reduce its expenses and improve profitability.
This most probably implements during times of financial drawback of a company
or during economic downturns. Nowadays cost cutting has become a part of the
business strategy.
Why
Cost Cutting is needed?
What
costs to be cutoff?
What
kind of costs that should be eliminated? It’s important to implement a strategy
to identify the various cost types. Some costs are necessary for the smooth
functioning, operation excellence and for making profits for the organization.
Simple understanding on Cost Types
Direct Costs
Directly accountable to a cost object and related to producing a good or service. A direct cost includes raw materials, labor, and expense or distribution costs associated with producing a product.
Indirect Costs
Indirect costs are expenses unrelated to producing a good or service.
Fixed Costs
They are constant and do not vary with the number of goods or services a company produces. Ex- Rent
Operating Costs
Operating costs are expenses associated with day-to-day business activities
Opportunity Costs
Opportunity cost is the benefits of an alternative given up when one decision is made over another.
Controllable Costs
Controllable costs are expenses managers have control and power to increase or decrease.
Since when making decision by the management on what expenditures to be eliminated, should be more vigilant and cautious.
Reference
Daniels L. (2021) what is an expense. investopedia.com [online] Available from: https://www.investopedia.com/terms/e/expense.asp. [Accessed : 29 April 2021]
Christine H. (2018) cost reduction strategies. vonolo.com [online] Available from: https://www.wonolo.com/blog/cost-reduction-strategies-for-coos/. [Accessed : 28 April 2021]
Kevin C. (2010) when you've got to cut costs. hrb.org[online] Available from: https://hbr.org/2010/05/when-youve-got-to-cut-costs-now. [Accessed : 28 April 2021]
6 Comments
I think it is good to have a Contingency plan.because good business management means planning for when things go wrong, as well as when things go right. Disasters and serious incidents such as flooding, pandamic (covid 19), fire or the death of a key employee are relatively rare, but they do happen. By identifying possible risks to your business and using them to make a contingency plan, you can ensure your business continues to survive and thrive after a crisis.
ReplyDeleteEvery business faces challenges but it is how well you deal with them – particularly in a crisis – that makes the difference. Having a robust plan in place beforehand can make things easier and faster to deal with when problems arise.
Contingency plan can also help protect the company reputation when things go wrong. You can put your plan into action straight away and stakeholders and commentators can see that you are taking positive action from the off. Your essential business operations will be able to continue, you’ll be able to communicate effectively with customers, the media if necessary and other key stakeholders.
Thanks Anjula, I agree with you. Having a contingency plan is kind of minimizing the risk of an organization when something badly impact to. It can be vary from organization to organization according to the nature of the field they engaged in. But even in Plan B some amount of cost can be involved like operational cost and opportunity cost.
DeleteHow the cost cutting applicable with HRM?
ReplyDeletePlease read my next article on following link which is clearly elaborated that "how cost cutting applicable with HRM"
Deletehttps://dwijenayaka.blogspot.com/2021/05/blog-post.html
Usually in any industry costs have been growing faster than revenues. Hence I think there should be a strategic approach to cost reduction in Banking sector. To remain sustainable, competitive and profitable, banks need to manage costs efficiently. Cost management, though, does not necessarily mean cost control and cost reduction. Short-term cost reduction exercises may result in quick benefits. However, such an approach may not be sustainable in the long-term and could result in the bank losing its competitive edge. A comprehensive and detailed cost-benefit analysis of processes, products, people and infrastructure can help banks strategically plan an approach to efficiently manage costs and improve profitability. To survive, banks must focus on taking a strategic approach to cost efficiency and effectiveness.
ReplyDeleteThanks Sevindi, we have to bear some amount of costs in every organizations as well as banks, when producing services or goods. But we have to manage that, what costs to be bored and what should be eliminated. While being cost efficient and providing excellent service is kind of a challenge in banking sector. Since cost cutting strategy should be implemented in banks without harming its service quality.
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