What Ever Happened to Cost Control?

Peter Drucker once stated, “In cost control, an ounce of prevention is worth a pound of cure.” This has never been more true than it is today.

Since the joyous period of Covid and the intense & the extensive damage that it inflicted upon us, costs for many businesses have simply been out of control. How could this have happened?

Well, I would suggest that the damage stemmed from well-intentioned interventions. It suddenly came into vogue for our government to throw money at the challenge to keep our economy going. Initially, this helped as businesses struggled to keep their doors open (or add a drive through window…).

Unfortunately, their last $10 Trillion infusion pushed us over the edge, financially. The result was severe levels of inflation. While we have now been able to get this under control, as the saying goes, “the damage is already done.” Typically, once the price of various items goes up, they tend to not come back down. Who pays for this?

The end user or consumer, and it becomes a difficult cycle to manage. While you may already have solid cost controls in place within your business, we cannot afford to take our eyes off the goal.

Drucker cited a pharmaceutical company which, during a highly inflationary period from 1965-1995, grew almost eightfold, adjusted for inflation. They simultaneously held their cost increases to a fixed percentage of their increase in revenues. They controlled their costs by limiting the rise in costs to 6% for every 10% increase in revenues. After several years, they also strove to make sure that their costs went down in the same proportion as their sales decreased in any down periods.

Not to oversimplify this process, but begin by asking yourself the following question: “If my sales were to decrease by 10% this year, where can I decrease my costs to offset this, without impacting the productivity of my operation?”

It is only a start, but it can be the beginning point for vastly improved profits. If you need assistance with this process, please let me know.

“I am not a product of my circumstances. I am a product of my decisions.”

                                                            Stephen Covey

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