In a heavily competitive market landscape, companies need more than just great products to sustain business success. Having an efficient cost management strategy is also of primal importance.

An efficient cost management strategy helps the enterprise to offer competitive pricing and improve revenue opportunities. In addition to traditional modes of gaining financial oversight, the executives in top positions must also get access to strategic insights into how their operations are tied to cost management goals. They must establish approaches that guarantee accuracy in costing data, visibility into all operational entities that play a role in costing and align cost models with industry practices.

The changing role of CFO in an organization

In the context of cost management becoming a strategic pillar of business growth, the role of CFOs within an organization is also transitioning. The role of a CFO is undergoing a transitional phase from being a just a number cruncher to one who assists the CEO in navigating complex business challenges.

CEOs and other leaders need actionable intelligence on financial metrics within the company. This includes insights into what products are making money, the ones that are bleeding away profits, the markets that have contributed more to the company’s coffers, the processes that are eating away budgets beyond expectations, and much more. The CFO becomes the center of an action-driven initiative that strives to discover such actionable intelligence from within the organization. This position and department is no longer just a bookkeeper of the company’s balance sheet, but a strategic advisory unit that can influence every activity of the business.

CFO’s and cost management

Now that we understand the key role played by CFOs in the organizational hierarchy today, it is equally important to understand how their key objectives of cost management help the business to stay afloat and competitive. Through effective cost management strategies, CFOs can gain comprehensive insights into metrics that will help the leadership steer ahead in tough markets.

Driving ahead with cost management

Let us explore some of the core benefits that an empowered CFO can bring to an organization by leveraging an effective cost management strategy:

Identify the most profitable sales cycle

Increasing revenue is the key source of profitability for any business. However, it does not inherently imply that any kind of increase in sales activity will directly improve revenue. With a suitable cost management approach, CFOs get a clear visibility into how a sales cycle progresses and matures into a profitable component in their balance sheet. They can understand which product brings in the most profit in which region and for what class of customers. The insights sheds light on who, how, and when to target from a marketing perspective as well. In other words, having accurate costing data management helps to identify the most profitable sales cycle involving all stakeholder combinations.

Price modelling

Like how the insights surrounding the sales cycle are useful, accurate cost data also helps to pinpoint the right pricing strategy for different classes of products, customers, and production cycles. It helps the CFO to answer questions like “How many customers can buy a specific volume of the product if it is priced at X per piece or batch?” Or “How profitable will my production be if I procure products at a specific price from a specific vendor?” These insights matter greatly to the top management and CFOs can certainly translate this benefit into a valuable proposition for the executive leadership.

Analyze the impact of changes

The accurate cost data provides previously undiscovered insights like how product costs differ when operating processes or workflows change, new features are added, or feedback from the market. Cost management helps bring transparency and end-to-end visibility into all factors influencing product costing and pricing. For example, with cost management, it becomes easier to understand how the total production cost changes when a specific product is built in-house or outsourced to another vendor, the change in production cost when one or more of the raw materials is procured from a different vendor or the raw material is changed, and much more.

By matching changes to the differentials in cost, it becomes easier for CFOs to provide decision-making feedback to the leadership. The CEO or Board of Directors can use this data to optimize production cycles, introduce lean periods in manufacturing, experiment with underutilization or overutilization strategies for production facilities, and much more.

Cost management provides a holistic understanding of how an organization’s business is aligned with financial goals and aspirations.

Businesses need to succeed in their cost management initiatives through an end-to-end automated cost management system powered by intelligent processes. This is where a dedicated technology partner like Pro~Active can help make a difference. Get in touch with us to know more.