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Perspectives

Cost management perspectives from the front line

Leader's corner | Profitability and cost management risk

As reported in the Deloitte Touche Tohmatsu Limited 2019 Global Cost Management Survey, many organizations are tapping into digital to shift from a save-to-grow to a save-to-transform mindset. With this movement, there are clear and present risks. Our leaders weigh in on the risks and provide perspectives from the front line.

Cost management Q&A with Mike Seng

Q: What factors are driving the biggest global risks in cost management? 
This year’s survey elevated two digital-related external risks of high concern: Cybersecurity and digital disruption. In the 2017 biennial survey, the highest ranked risk was macroeconomic concerns, with digital disruption barely on the radar. The shift over the next two years illuminates cyber everywhere disruption as well as the transformational nature of digital—both which upend traditional risk management thinking and leading practices.

Furthermore, information systems were ranked as the top internal risk. Reliability and functionality of information systems is the top internal risk globally, particularly in the United States and Europe. With the growing use of modern systems, many organizations are seeing improvements in the reliability and capability of information systems.

Other internal risks include recruitment, development, and retention of talent. These were followed closely by a lack of controls, processes, and systems to achieve business continuity.

Q: What are driving the risks and where do performance opportunities exist?
Evolving consumer behaviors are challenging organizations to find a balance between the need to transform and the need to control costs. For many organizations, data resides in disparate systems and there rarely is a single source of truth. As a result, many organizations lack transparency into the actual cost of servicing customers across different dimensions (products, customers, and channels, etc.). They may lack the skilled resources and tools in advanced analytics, data science, and cost management techniques to inform strategic decision making. Bringing these capabilities to life has enabled organizations to understand the levers that create/destroy value in the products and services they provide, as well as the overall cost to serve their customers.

  • Cost management barriers in implemental remain high
    As noted in this year’s survey, implementation challenges remain the top barrier to successful cost reduction initiatives. The top lessons learned according to respondents are:
    • Invest in technology improvements to enable data availability, reliability, and decision making
    • Design a solid tracking and reporting process
    • Assess, validate, and adjust targets to fit the realities of implementation
  • Cost management maturity levels have room to grow
    Roughly two-thirds of surveyed companies globally don’t have highly mature cost management practices. The United States leads the way with 50 percent of US respondents reporting a high level of maturity where cost policies and procedures are continually reviewed and examined to achieve best practices around efficiency and cost management.

    When sales, distribution, operations, and finance all have the information needed to make strategic decisions around the product mix and services they provide to their customers, they can dynamically optimize profitability strategies and pricing structures.

Q: What’s the role of technology in digital risk and cost management?
In developing their capabilities, surveyed companies have been primarily focused on cognitive and artificial intelligence, enterprise resource planning infrastructure, and especially automation. With companies investing more time, money, and effort in capabilities that contribute to digital enablement and digital transformation, the responses tell us that we see technology capabilities are a primary development focus for most respondents.

Cost management practices and approaches have grown increasingly sophisticated over time, with digital cost solutions—although still maturing—now representing the most advanced level of cost management. Companies that relied on more traditional profitability and cost management methods in the past are now finding that digital solutions can open the door to a whole new level of savings, as well as enabling new and more innovative business models.

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Mike Seng

Mike Seng | Partner, Deloitte Risk and Financial Advisory

Mike is a CPA and Chartered Global Management accountant with more than 17 years’ experience. He has led several projects in designing cost allocation (also known as chargeback) models, budget and forecasting redesigns, profitability analysis, strategy development, and organization restructures.

The view for leaders

The survey findings indicated that over 68 percent of global and 84 percent of US respondents plan to undertake cost reduction initiatives this year. But with 81 percent of global respondents unable to fully meet their cost reduction targets (18 percentage points worse than in 2017), a better strategy is needed.

We can help leaders bring transparency into the variables that drive cost and enable scenario modeling to visualize how small shifts can create dramatically different outcomes. Our experience across industries, deep analytics, cost and profitability management, and modeling has helped many organizations achieve their transformation ambitions.

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Need a path forward on cost management in the digital risk era?

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