TP ThinkingProcess

Finding Costs Framework

Internal / External Cost Area Type Functional Cross Functional End to End
      Functional owned functional benefit Jointly owned joint benefit process owner owned - shared benefit
External - Customer Elimination Eliminate non-required process / service      
Internal Simplification Process waste removal   Simplify Process X  
  Productivity Resource Productivity     Increase productivity on process W
  Negotiation Resource unit costs      
External - Supplier Elimination Eliminate supplied services Stop buying Y    
  Negotiation Reduced unit cost of supply   Re-tender Z  
    Service Outsourcing      

The table above is a useful matrix for identifying and prioritising areas of cost in the business that can be removed. It moves through the following areas

  • External Customer - these are services that are provided to the customer that they do not value or use. This might inlcude some packaging, reports, etc
  • Internal simplification - these are costs associated with wasteful processes, where application of lean techniques can identify and remove costs (and improve service levels)
  • Internal productivity - these are costs associated with internal resources; people, machines etc, where their utilisation is not optimised. This can include waiting time, but also incorrect resources e.g. expensive people doing less expensive jobs, or over spec'd machines and vehicles
  • Internal - resource costs - this is expenses and other people associated costs that can be reduced
  • External elimination - this is stopping purchasing items that are not required, or are over spec'd for the job.
  • External negotiation - this is the renegotiation of prices for delivered services into the business
  • External outsourcing - this is the intelligent outsourcing of activities where cost (and quality) benefits can be achieved

Each of these can be assessed functionally, cross functionally and across end to end processes to identify different areas of cost.

Once the opportunities have been identified they are prioritised using a cost / benefit matrix and projects established to drive out the costs.