2.3. Benchmarking

For those organisations with a number of branches or similar operations, it’s very important to benchmark each cost item between business units, branches and departments right across the business, using the underlying business drivers for comparison – stationery costs per employee for example.

You may also be able to benchmark your spend against other companies in your industry, using information provided by an external partner. For example, facilities – how much are you paying per square metre for rent, rates, lights, teas and cleaning, and repairs across the business?

Benchmarking lets you set cost reduction goals and gives you a factual basis for negotiating reductions with business unit heads.

External partners – one of the big four accounting firms or big six consulting firms – have prior experience, bring objectivity to the process, and most important, can give you access to external benchmarking data.

2.4. Zero service levels

The focus in healthy organisations is normally on zero-line-item budgeting, looking at specific categories of cost. But the adjudicators are also required to look deeper and make some decisions in principle. This may be the right time to close down a struggling project or a new product about to be launched. Zero-service-level budgeting looks at activities as a whole. The adjudicators should stand back and consider different levels of future activity for every department and project:

• Close it down forever

• Mothball until the crisis is past

• Lights on – the minimum service level at which the department can still exist

• Current service level with zero base cost control

• Expanded level of activity, usually by taking over another department’s activities

Communicate the decision as soon as it’s taken.

Decide what you are going to change.

3.1. Certainty and uncertainty

Zero Base decisions are influenced by the degree of certainty you have about future revenue. In times of uncertainty, many companies order temporary cost freezes for items deemed non-essential, in order to avoid decisions with long term business impacts.

The scope of a ZBB exercise has to be based on a view of the future. Meet with your top team to review the state of the business, paint some scenarios, and agree a way forward.

This view provides the context for the ZBB exercise, helps you set priority cost categories for review, and determines the degree of intensity and direction of your ZBB.

It’s clearly vital to communicate what you are doing and why you are doing it, to staff at all levels. Good MD’s and CFO’s write regular e-mail letters and Zoom meetings with all staff.

The benefits from long-term supplier relationships are important in the "fat vs muscle" trade-off. With pressure on to meet the budget and cost reduction deadlines it's easy to adopt a "slash and burn" approach to cost cutting. Choosing a cheaper supplier with less reliability can destroy relationships that have taken years to build up.

The soft targets are usually the first to offer opportunities for revised approaches – advertising, travel, training, maintenance, consulting fees, communications. But beware – you may be throwing the baby out with the bathwater. Beware of interdependencies. Targeting selected service departments only, will impact its internal customers.

At Boeing, investigators have questioned the quality controls and test intensity on flight software which led to the suspension of production of the 737 MAX, which remains grounded following two deadly crashes.