Transformation talks series: A new playbook for strategic cost management

February 2023

Kurtis Babczenko
Finance Transformation Leader, PwC US
Frank Mackris
NextGen Cost Analytics Leader, PwC US

Business leaders continue to face unstable economic conditions, making it increasingly difficult to protect profitable growth. The Future of Finance needs to offer rapid responses to recessionary threats. In this environment, business leaders need accelerated hindsight, deeper insight and credible foresight into performance and profitability to navigate the tough road ahead — areas where finance needs to help deliver.

In the fog of economic uncertainty, high-profile layoffs might cut costs, but they tend to be a blunt cost-saving instrument — one that can also signal an organization doesn’t have the instrumentation needed for more surgically precise, proactive cost management strategies. Despite significant investments in cloud technologies since the onset of the COVID-19 pandemic, many finance teams have become leaner and more efficient but still lack the fundamental capabilities to deliver business insights that can drive and protect profitable growth.

A lack of cost transparency from arbitrary expense allocations and antiquated technologies have left many leaders with important unanswered questions.

  • In which markets, products or customer segments are you most exposed to future profit pressures? Thoroughly measure profitability across all dimensions of the business, with traceability to the drivers of costs.
  • Can you confidently forecast demand and the impact on cost structure across the various scenarios you’ll face? Expand predictive modeling methodologies, aligned to the economics of the business, to anticipate course corrections and manage costs.
  • Where can you rapidly cut costs without risking profitable growth? Develop analytics beyond the expense line with insights that identify opportunities to manage consumption, improve efficiency and increase capacity.

It doesn’t have to be this way, as costs remain the most controllable part of the profit equation. A new playbook for strategic cost management is emerging to combine rapidly improving costs with establishing the capabilities for recurring cost control across the enterprise, while also avoiding reactionary responses to future disruptions.

A multidimensional approach to cost management

Rapid cost optimization + recurring cost control capabilities

Holistic strategic cost management can offer more credible insights, better enterprise engagement and increased effectiveness when making course corrections.

First, engage the enterprise in a cost management mindset that measures the costs of output instead of spending, with output measures tied to volumes that help isolate variances and provide insights into where margins are created and eroded. Establish management reporting capabilities that deliver consistent views of operating profit across key business dimensions (business line, product, geography, key customers, etc.) on a plan, actuals and forecast basis. These capabilities can help you move from managing with an ax to a scalpel.

Second, leverage financial technology to its full capability. This new cost management mindset requires new measures and models that next generation planning, forecasting and reporting tools deliver more efficiently and effectively. Deploy guided analytics that drive more profitable behaviors across the organization. When they have the right information, your people can generate the insights that greatly affect your future bottom line.

Finally, if you need to navigate current cost challenges quickly, determine who can help you implement these capabilities now. Digital transformation takes time, and in a crisis that may not be a near-term option. Our existing technology platforms and tools can help accelerate your speed to value, with the talent to operate these tools on your behalf.

The last few years have been challenging, and disruption may be an issue for years to come. Those at the helm of organizations will be continually tested to find course corrections with increased speed and intensity. It is, however, an opportunity to redraw the maps to profitable growth — and when the right instrumentation is in place, finance is the navigator to improved performance.

The next wave of finance transformation is here. Learn more about the five key capabilities leading finance functions possess and what you can do today to unlock value across your organization.

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