Cost Savings Office CSO

Confidential and Proprietary©2009 Ed Kerbs KERBS

Best Practices In Cost Savings and Expense Reduction:

Ed KerbsMarch 2015

Set up a Cost Savings Office (CSO). Put governance and structure around

savings and reporting. Gain credibility and avoid issues by

prioritizing a justified & sanctioned savings portfolio.


Savvy Cost Savers Generally Achieve Three Goals:

1) Meet Business Requirements• Requirements are missed regularly • Failing the business effects careers

2) Deliver Cost Savings (increased quality, decreased time to market)• Goes directly to the bottom line• Pure profit, net proceeds

3) Evolve Process• Make enhancements, drive process improvement• Automate – let the machine manage tedium. Communicate clear, timely and irrefutable financials• Become a trusted partner of the business you support

Save money and deliver timely financial transparency with unfailing accuracy and precision.

Cost Saver Best Practice


Cost Saver Best Practice

Three Common Tools To Deliver Savings:

1) Negotiations• Internal & External • Domestic & International • Tangible ($’s) & Intangible (Something else)• RFP, RFI, SOW, Contracts

2) Demand Management & Business Process Reengineering• Spend Rationalization• Vendor Consolidation• Process Enhancement and Re-Engineering • Insource / Outsource – Nearshore, Onshore & Offshore

3) Audit• Forensic accounting• Auditing inventory, contracts, invoices • Performance - SLA’s

Taking full advantage of these 3 proven tools can feed a thriving savings pipeline. First set up a Cost Savings Office. Savings pipelines need structure and governance.


How To Set Up A Cost Savings Office:“Sponsorship, Governance & House Rules”

• Cost Savings Office Structure – Day 1 Basics • Gain executive sponsor and formalize charter, scope and goals• Can be stand alone, or as part of Vendor Management Office (VMO)• Can be integrated with Purchasing, Procurement, Sourcing, Supply Chain• Build Team: Legal, Finance, IT, Sourcing, User Business, Vendor…. • Vendor’s and firms best and brightest must partner in cost savings• Set up governance checkpoints with management (quarterly?) • Initiate and sync reporting cadence with management checkpoints• Implement scorecards and reporting beginning with current reporting year cycle• Gather ongoing efforts and new leads• All leads go into a pipeline that becomes the centerpiece of governance

Best Practice – Building Pipeline Set expectations and educate around savings, gain management commitment Meet with many people and become fluent around the Firm’s organization structure & culture You are a profit center for the Firm. Insist on proper tools and support.


How To Set Up A Cost Savings Office:“Sponsorship, Governance & House Rules”• Initial Pipeline Structure

• Gather all potential leads, “not invented here” mentality not allowed• Offer confidentiality or full transparency as needed. Become a trusted partner. • Document all savings as estimated until complete (weighted against probability) • Savings Delivery Dates need to be agreed on, rational and achievable • Savings Delivery Date extension requires executive sponsor approval• Document opportunities as - Active, Complete, Pending, or On Hold • All savings are estimated until complete • All savings initiatives start “on hold” until owner agrees it is “active”• Dates for initiation and last update are needed for each entry• Business Case needed for each entry

Best Practice – Building Pipeline

Set your scope carefully, “boil ocean” for ideas, “laser focus” on sanctioned justified projects Cornerstone artifact is a pipeline report of textbook quality and irrefutable accuracy & precision



• Each Cost Savings Pipeline Initiative Need A Business Case:• Business case defines and justifies effort

• Each initiative is subject to management prioritization via governance

• Case with excessive complexity or length typically is sub optimal

• Finance verification / buy in (e-mail OK) required

• Includes owner (Vendor and Firm), nature of the save, estimated save amount, timing of savings (savings delivery date) and assumptions

• Includes cost drivers, critical inputs, (5 whys).

• Must have robust savings measurement systems and ongoing follow-up for accuracy and precision

• Can be simple or complex, may require time & HC to implement

• Case is needed for “future ROI” or “revenue enhancement” or “hidden, pet, etc.”

Best Practice – Building Pipeline Gain credibility and avoid issues by prioritizing justified & sanctioned savings initiatives Business cases do not need to be complex but exist to insure rational and productive prioritization Follow up to see if business case and actual results allow continued rational pursuit


How To Find and Define a Pipeline Of Cost Savings:Definitions Around Costs and Savings• Cash Flow around Savings

• Elixir of business – “nothing good cash flow can’t heal” (almost)• Bad cash flow, misinformation or misunderstanding causes issues • Understanding basics around savings timing is important

• Outflow - “Big” company to company money in US - Check, ACH, FedWire • All methods i) involve an orderly, civilized but bureaucratic process, ii) can take far longer than even imaginable• Cost savers and purchasing experts are enmeshed with these processes, and the budgets that drive them• “Good Friends” in: Finance, A/P, G/L, Treasury, Legal, reporting, sourcing, end users, IT & Upper Management

• Internal Flow• Accruals – Spend, warn or loose – understand budget

• Inflow: timing of savings credits – define each via this lexicon and educate management for consistency• On Hold – Potential opportunity noted and under observation only (Pending go / no go) • Estimated Savings - Value of a potential savings opportunity with assumptions - Format=~$XX+/-

• 20% Rule – with initial limited info a $1M savings opportunity actually yields $200K estimated • Report updated weighted estimated savings against probability ($1M)*(20%)= ~$200K+/- • Estimated date of savings delivery is also important in this context ~Jan CY 2010+/-

• Active – Savings opportunity being pursued in earnest – savings are “draft, initial, preliminary ~$$+/-” • Pending – Savings is agreed to “meeting of minds” and his highly probable but not “complete” • Complete – Savings is “in the bank” and/or contractually in force and/or visible in budget and/or GL

Best Practice – Timing of The Save In every case proactively manage the flow of money and flow of communications and reporting around the money Information, expectations and both official and back channel communications can lead to good and bad perceptions With upper management, perception is reality. Get in front and stay in front.


How To Set Up A Cost Savings Office:“Sponsorship, Governance & House Rules”• Cost Savings Pipeline Example:

Best Practice – Building Pipeline Use annualized savings – one full years worth. Use weighted estimation of potential saving. Use Pipeline spreadsheet as cornerstone artifact of CSO and as agenda for governance meetings Set governance meetings monthly at first with upper management to report and prioritize


How To Set Up A Cost Savings Office:“Sponsorship, Governance & House Rules”• Cost Savings Office First 100 days – achievable and realistic

• Get low hanging fruit, quick win, “in the bank” & “under a spotlight” in 60-90 days, pay for your salary and team’s (stretch) if possible in savings.

• Set expectations and educate around savings, gain management commitment for longer term CSO commitment

• Suggest priority but let management prioritize savings portfolio via governance• “Save spurs reward” nice culture shift everybody can like • Build trust around CFT, honor your word, date for a date• Busy, savvy, saving experts

• Automate data gathering & reporting on spend & savings • See that accurate, precise measurement systems are in place & understood • Insure reporting is professional featuring “textbook” quality • Insure socialization and visibility at the right levels of management• Commit to realistic and achievable deliverables and do not over commit on either

savings amounts, savings delivery dates or reporting dates

Best Practice – Building Pipeline

Elevate all relevant contributors to “rock star” status via top down praise and $’s if possible. Management involvement, formally & informally, surprise visits, lunches, comp days etc.



• Pipeline – building a conservative and credible brand • Irrefutable financial accuracy and precision must be the norm • Make sure that savings is net of any hard dollar or head count expense required• Pay vendors and suppliers on time, follow big $ payment trail for savings ideas• Accuracy can be a “Two Edged Sword”, maintain 100% reporting credibility • Conservative savings assumptions are essential• Agreement with management around all assumptions is mandatory• Report one on one to trusted counsel if you encounter any rogue, renegade or

maverick behaviors. (best outside your reporting chain) Find that person now just in case.

Best Practice – Integrity above all else

Always demonstrate the highest level of Ethics and Integrity Always insist on the highest level of Ethics and Integrity from all others

Documents

Cost Savings Office CSO