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Cost Wiring

PIP is known for rapid, sustainable results. Our proven wiring processes can deliver a lifestyle change for your business - so that your people understand, review and systematically squeeze costs as part of their daily routines. Done correctly, your people will start to “Spend it like it’s their own money”. Clear accountabilities, incentives that work, user-friendly reporting, reviews, ability to analyse data (no more “chats without facts”!), improvement processes, and induction training in cost management for new managers all contribute to what we call Continuous Cost Management (CCM).

For a site to continuously manage costs, and improve their position on the cost curve, there are some key elements that must be in place. PIP can help you answer the following questions:

1. Where is the money?
2. Who owns it?
3. What’s really happening?
4. How to reduce it?
5. How to drive the process fast?
6. How to close the loop?

1. Where’s the money?

Where does the money go and what drives it? What’s needed is an easy, repeatable method for people to know where to focus their efforts and what the next highest value improvement area to tackle is. We train your people to develop value driver trees (VDTs) that show the drivers of each spend item. Combining this with Full Potential (technical limit) analysis then allows you to assess the potential for improvement on each lever. With real dollar numbers in the tree, you can start to prioritise (by value and ease), where to focus effort. For each of these areas we would carry out Idea Generation Sessions, a proven and methodical approach for rapidly teasing out improvement ideas, which would also be value:ease prioritised.

2. Who Owns It?

Single point accountability is essential for cost management. You only get irreversible behavioural change when people know they are accountable – that they are the ONLY ONE ACCOUNTABLE for their spending - and that they WILL be tracked and reviewed. Crucial to this is the ability to break costs up by individuals – e.g. consumables by shift and therefore shift supervisor - not just as a lump under the area manager. This usually requires effort on improving data integrity otherwise the whole process falls apart and we assist your people to get this in place. We help you:

• a) develop single point cost KPIs and
• b) determine who, in your organisation, is best given the accountability of each KPI and
• c) to explain cost KPIs and responsibilities to your people and coach them on how to improve them

3. What’s Really Happening?

This requires drill-down capability and trend analysis. Simply knowing that we spent $2 million on ice cream against a budget of $1 million doesn’t help. Is the price going up or are we using more? Is the amount consumed unchanged but hot weather causing wastage? Has somebody started buying Super Luxo Cookie Cream Commotion when previously it was Black and Gold? What are the trends? Also, we always drive for root cause. Maybe ice-cream consumption is up because the air conditioner is broken (the maintenance contract may cost 10% of the ice cream overshoot, but we had a crash-diet purge on maintenance costs!), or we have a thief in our midst. We’ve developed a proprietary software tool (Focus) that enhances traditional driver trees to analyse historical data and clearly identify causes of variance and their contribution to profit, even in complex multivariate situations. This may imply initial work since many systems are not that intuitive to interrogate data (have you ever tried to use gate swipe-card data for contractor entry control for example?) but the old adage “if you can’t measure it you can’t control it” is unfortunately absolutely true. On the plus side though, we are rigorous in using the 80:20 rule – so we’re only applying this effort to that small amount of data that really impacts your costs.

Use Trend Analysis to explain what has really happened.

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4. How to reduce it?

We coach you to group the levers of each spend item into four main types – each of which has an optimal improvement methodology (covered in our section on cost reduction). We show you how to use the appropriate methodology and then, using the wiring skills mentioned in this article, wire the organisation up so that you effectively, relentlessly eliminate unnecessary costs.

5. How to drive the process fast?

Speed is as important as sustainability. Rapid results provide incentive and increase momentum. Key to this is clarity around ‘who does what by when’, ‘short interval control’ and ‘holding people to account’ so there is no slippage. We coach you to learn and use these simple but powerful wiring skills that help you get the business results that you want quickly. Daily action plans become second nature. Phrases like “oh I thought someone else was working on that” or “sorry that just fell off the radar” get subtly erased from your culture.

6. And finally, how to close the loop?

All of the above has limited effect if this is not a closed loop process. We’ll show you how to ‘close escape hatches’ so the opportunity to wriggle out of your commitments because your performance is not visible or reviewed is closed. Review should be frequent and timely – daily or shiftly if necessary. Questions like: “did we do what we said we’d do?”, “did it work?” and, “so what do we each do next?” must to be asked in a data-centric, no surprises, focused forum. We call these ‘Results Action Reviews’ (RARs) and, implemented well, they are probably our most powerful (and popular) tool.

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