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PIP’s Approach to optimising overheads

When optimising overhead functions, PIP follows a four step approach:

Establish the principles to guide decisions on centralisation versus decentralisation
Develop a baseline of costs consumed and value created by each overhead function
Identify improvements
Lock in value through robust implementation management and organisational ‘wiring’.

Steps for optimising overhead functions

1. Establish the principles

Effective overhead reduction efforts clearly articulate their principles around centralisation versus decentralisation. Broadly, the trade-off lies between centralising to increase efficiency and decentralising to increase accountability. Establishing these principles up front avoids wasted effort on impractical ideas.

2. Build the baseline

An essential step in any improvement effort is to clearly understand the current state of the business. The baseline provides a fact based understanding of the value and the cost of each overhead function and is a crucial step in robust opportunity identification. This understanding should then underpin targets and define relevant KPIs for the reduction effort.

There are three core elements to an effective baseline:

Determine the value of overhead outputs - before setting savings targets in order to understand potential opportunity costs
Differentiate between support and governance - in order to facilitate more effective idea generation.
Map cost and value to outputs - through identification and mapping to the associated activities.

A systematic approach should be taken to building the fact-base of spend by objective

3. Identify improvements to increase value and reduce costs

Reductions in overhead costs typically come from a myriad of improvement ideas. It is important, therefore, to use a systematic and thorough approach to identifying and developing these ideas.

In broad terms, there are three ways to reduce the costs of delivering an overhead service:

Reduce the work required - through alignment of outputs to current business requirements.
Increase productivity - through reducing the effort required to produce the outputs.
Lower the cost of overhead services - by lowering the cost of resources required to perform the work.

4. Lock-in value through effective implementation and “wiring”

With the opportunities identified quantified and prioritised, a plan must be created, implemented and sustained to turn these ideas into sustained cash.

Implementation Planning
Given the disruptive nature of overhead reduction, PIP generally works with clients on delivering a rapid (one-off) step change underpinned by thorough implementation planning.

Implementation Management
Consistent reporting of goals, financials and headcount for the project means the overall benefit can be tracked and reported and staff held accountable to deliver the results.

“Wire” for the organisation for sustainability
To ensure changes are sustainable and that costs do not creep back in, PIP focuses on “wiring” the organization. Wiring is the term PIP applies to our holistic framework that encompasses the processes, systems, accountabilities and behaviours that determine how individuals and the organisation behave and therefore perform. Good wiring sustains improvements and great wiring builds a culture of continuous improvement.