Cost management, like other areas of company management such as budgeting and finance, requires a management tool that clearly defines objectives, areas of activity, responsible parties, tasks, deadlines and monitoring methods.
At this point, the creation of an Action Plan is essential. It helps the company to organize complex factors involved in cost management.In this article, we will discuss this tool, which will greatly contribute to the success of Cost Management.
What is an Action Plan?
If we think about our personal lives and the project of buying our own property, there are several items that need to be managed: the time needed to save up for the purchase, researching the property, surveying costs, defining the best living scenario for the purchase, financing options and forecasting the outlay.
The list will unfold into more specific items, giving a good idea of the complexity and importance of an Action Plan.
Without it, purchasing a property certainly becomes more complex and risky, as there is no way to anticipate and react to each event at the right time. We will always be reactive, and decisions will not always be precise. This happens, in an amplified way, in Cost Management.
Basically, an Action Plan is a control (systemic or not) of all decisions and activities related to the achievement of a specific or permanent objective (constant management).
An Action Plan is essential for the better functioning of any organisational structure. It allows all of the company's resources – people, funds, systems – to be linked to objectives, benefits, actions and deadlines and to create an ecosystem that aims for the best technical and financial performance of the structure.
Action Plan – Characteristics
An Action Plan should have:
- Clear objectives – both general and specific. For example, a Sales Action Plan may be 10% growth per year and have specific objectives with varying growth rates by product type.
- Objective and measurable benefits – these should be aligned with the company's expectations and there should be ways to measure them.
- Controls by activities/actions – it is very important that each one has specific objectives, actions, budget, risks and deadlines and that, together, they form a schedule that is clear to everyone.
- Nominally responsible parties – do not define by sector or department; it is important that individuals are responsible so that communication between areas, within the schedule, is fluid.
- Feasible deadlines – this is an important challenge in any Action Plan, but deadlines cannot be so difficult that they only serve to calm the organization.
The construction of an Action Plan is based on the following questions:
- WHAT is to be achieved – objectives (one or more depending on importance);
- WHY is it to be achieved – the objective and clear benefits of the actions;
- WHO – those responsible for the Plan and related activities;
- WHERE the Plan will be implemented – companies, sectors, processes, accounts;
- WHEN the Plan will be implemented – its period of implementation (one-off or permanent);
- HOW the Plan will operate – how the objectives will be achieved;
- HOW MUCH the Plan will cost – employee time, resources, consulting.
Considering a permanentAction Plan, it is possible that there will be specific plans of limited duration. For example, a Sales Action Plan, with general guidelines for marketing, coverage, discounts and structure, may at any given time contain a plan to promote sales of a particular product, with its own conditions, involving part of the sales team and for a limited time.
The 5 Essential Steps of the Action Plan in Cost Management
Initiation
Essential for the functioning of the plan as a whole, this step defines the general and specific objectives, the expected benefits, the areas involved and the deadline for achieving each objective (subject to review at a later date).
In Cost Management, the objectives should not be focused on reduction itself, as we are talking about a permanent control body.
For example:
Main objective: monitoring and control of all administrative costs for 2018 so that the budget forecast is not exceeded. Areas: all. Deadline: 31/12/2018.
Specific objective 1: 20% reduction in vehicle rental costs in 2018 compared to the amount spent in 2017. Areas: Commercial and Maintenance. Deadline: 31/12/2018. Expected benefit: savings of R$ 1,000.00 (20% of the amount spent in 2017).
The main objective will be measured by the consolidated result of all specific objectives at the end of their term. However, the Cost Manager must periodically measure these results in an expanded manner to understand whether the main objective will be met.
From this point on, we will use specific objective 1 as an example for the remaining steps.
Planning
In this step, all definitions related to specific objectives are made – activities, deadlines, responsible parties, budget, and contingency plans – quality control as the activity is developed, risk management and solutions (internal and external factors that may impact the completion of the activity.
Important: completion of the activity does not mean achievement of the objective, but rather the fulfillment of all the conditions for it, in order to eventually achieve the goal.
Specific objective 1: 20% reduction in vehicle rental costs in 2018 compared to the amount spent in 2017. Areas: Commercial and Maintenance. Deadline: 31/12/2018. Expected benefit: savings of R$ 1,000.00 (20% of the amount spent in 2017).
Activity 1: research 3 suppliers. Responsible: Jorge Cardoso (Administration). Deadline: 5 March 2018. Budget: not applicable.
Activity 2: analyze trips taken. Responsible: Celso Furtado (Commercial). Deadline: 5 March 2018. Budget: not applicable.
Execution
In this step, the planned actions are put into practice. It is important to accurately control the funds allocated to carry out the activities, as any distortion will result in additional costs.
Monitoring
Here, each activity is monitored in detail by the Cost Manager and their team to ensure that no events occur that impede execution or cause unforeseen distortions. The risk register, mentioned in Planning, is essential so that risks are exposed in that step (anticipate) and are better understood in this step. The person responsible for the activity must immediately report any event that could jeopardise its fulfillment and even adjust something that allows it to continue and be achieved.
Closure
This is the time to consolidate the results, evaluate them individually, understand whether the specific and main objectives have been achieved, identify the reasons (risks) that prevented achievement and could not be eliminated, and list the Lessons Learned for the next Action Plan.
Without a doubt, an Action Plan is extremely important for achieving any and all business objectives.
It is an ally that shows that, in an organized and controlled manner, objectives can be achieved.
It is a simple task in essence, but complex in execution, and having the partnership of a Specialised Cost Reduction Consultancy, such as the ERA Group, can make all the difference in the success of this endeavour.
ERA has experienced and qualified professionals to provide your company with full support in implementing Cost Management.
