Rising Costs

Rising Costs

Step 1: What problem are you experiencing within the organization, and how is this problem affecting (the performance of) your organization?

Costs within the organization are steadily rising without leading to improved performance. This puts pressure on profitability and limits the ability to invest in growth and innovation. Employees are stressed due to cost-cutting measures, while customers complain about price increases.

Note - Step 1 refers to the consequences of risks that have materialized. Examples include: Cash flow problems - Lower revenue - Higher costs - Inadequate staffing - Inventory issues - Low customer satisfaction - Customer complaints - Customer attrition.

Step 2: Where in the organization or process are the problems occurring, and who is directly impacted?

Rising costs are most acutely felt within operations, procurement, and finance:

• Operations: Struggling with inefficiencies in production processes and high maintenance costs.
• Procurement: Facing rising raw material prices and contracts that are not optimized.
• Finance: Observing increased costs per product, which erode profit margins.

Note - For step 2 consider responsibility areas such as finance, marketing, sales, IT, HR, procurement, core processes, investments, quality, compliance, and care.

Step 3: What exactly is happening within or to the organization that is causing the problem?

There is a lack of cost efficiency and insufficient focus on process optimization. Supplier contracts are not periodically reviewed, and there is no clear strategy to reduce waste in production and operational processes.

Note - For step 3 refers to risks such as: Delayed customer payments affecting timely bill settlements - Logistical process disruptions - Competitors acquiring customers - Inadequate staffing.

Step 4: Is the root cause of the risk internal or external to the organization?

The cause is both internal and external, here are the internal factors:

• Inefficient processes.
• Inadequate expense control.
• Outdated systems.

And the external factors: 

• Rising raw material prices.
• Changing market conditions.

Step 5: What is the underlying cause of the risk?

The underlying cause is a lack of proactive cost management and insufficient collaboration between departments. There is no systematic approach to regularly evaluate and optimize processes and contracts.

Note - Examples of step 5 include: Sales teams selling products/services that cannot be delivered to customers, leading to dissatisfaction and delayed payments - Outdated IT systems - Failing to meet customer commitments - Negative word-of-mouth - Increased competition for attracting and retaining talent.

Solutions via ICR

Solution Path 1: Immediate Action

An emergency response:

• Reduce non-essential expenditures temporarily.
• Negotiate discounts or better terms with suppliers.
• Strengthen expense controls by implementing strict approval procedures.

Solution Path 2: Sustainable Solution

A long-term approach:

• Implement a cost analysis system to identify major cost drivers.
• Optimize operational processes using Lean or Six Sigma methodologies.
• Periodically review supplier contracts and focus on long-term partnerships.
• Invest in technologies that promote automation and efficiency.
• Develop a (Key) Performance Indicators dashboard within ICR to monitor cost trends and profitability in real-time.

What Are the Benefits?

Immediate Action

Immediate relief from cost increases, minimizing their impact on profit margins.

Sustainable Solution

A leaner organization with lower operational costs, more efficient processes, and structurally improved profitability.

Note

No action means that risk events will continue to occur, and therefore the resulting problems will continue to exist within the organization.

Visit 'Welcome to ICR Troubleshooting' to download our free e-book.

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