The Key to Monitoring Your Operational Expenses: Revising Your Business Processes

On the surface, it’s probably hard to think of a few good things that came out of the economic meltdown. You probably faced declining sales. You probably did more work with fewer resources. But if you think hard enough, you probably also learned a thing or two about managing your expenses.

Maybe you have cut salaries or your hourly rates. Or maybe you reduced discretionary costs. But one constant you may not have made cuts to: operational expenses. As the economy appears to be slowly licking its wounds and sparks of recovery are in sight, it’s no reason to abandon cost-control efforts. If anything, you want to focus on regaining your profits. The best way to do this? Continued cost-control.

Now is a good time to take a retrospective look at the methods you used to control costs, and perhaps refine these so your business continues to grow in the future. So where do you start?

Take a look at the systems you currently have in place. Do you have the systems in place that enable you to closely monitor your costs, efficiencies and profit levels? If you don’t, ask yourself why, then install and operate them. If you do, start reviewing them soon. Closely monitoring your expenses is a fact of life in today’s business.

Now consider the following: Your company is looking for a way to improve its bottom line. You evaluate your own performance, you look at sales and financial data, and it appears that operating expenses are one of the biggest cost contributors. What do you do next?

Operating expenses as a percentage of revenue vary from a low of about 30 percent to as high as 80 percent depending on your business model and how you go to market. Internal business processes contribute almost all or at least a large part of the operating expenses in any company. If this is where your expenses are still high, what can you do?

Follow these four process improvement guidelines, and you’ll be on your way to efficiently managing operational costs:

1) Develop a list of key business processes used in your company today.

2) Investigate how well your business processes are doing with respect to quantitative and qualitative measures.

3) Determine how your business processes did last week, last month, last quarter and last year. Are they improving? Deteriorating? Remaining steady?

4) Take action.

Try implementing a 10 percent reduction in business process costs. This will reduce operating expenses and increase the bottom line directly—possibly even doubling or tripling its profits right away. More efficient and effective business processes delight customers and increase sales, contributing even more to the bottom line.

The important thing to remember is that process improvement really isn’t a luxury anymore. If you don’t keep a close eye on your processes, your competitors will.

Do you have a story about how you r business successfully examined your business processes to improve the bottom line? I’d love to hear it.