Chapter 18
Cost Reduction Opportunities
What Reports Are Used for Cost Reduction Projects?
A cost reduction analysis project should start with a general overview of the target area that results in a graphical presentation of potential cost reductions. The format in Exhibit 18.1 shows the potential cost reduction impact of numerous projects across the bottom axis and implementation difficulty on the vertical axis. Cost reductions in the lower right corner are “low-hanging fruit” that generate significant returns in exchange for a modest effort. Conversely, items in the upper left corner require a great deal of effort and produce minimal returns. This format is a good guideline for deciding which projects to address first, and which can safely be delayed.
Exhibit 18.1 Cost Reduction Payoff Matrix
In the exhibit, the commission restructuring in the upper left corner is projected to have such a low payback and high difficulty of implementation that it is not worth doing, whereas the procurement card program is highly worthwhile, since it has the reverse characteristics.
A variation on the cost reduction payoff matrix is one that itemizes a number of additional factors, such as the risk of project failure, implementation duration, and level of support. If any prospective project has a high risk score in any category, then the project manager should either consider alternative projects ...
