|  06.03.2017

Cost Savings lead to Profit Increase

Only 20% of savings generated by optimizing internal and external operational expenses are reinvested in organizational development – points out a study conducted in 2016 by Expense Reduction Analysts and the European Business School in Wiesbaden, Germany.

The audit which surveyed 281 companies from 10 European countries also proves that the impact of cost reduction measures will only be felt short term, in raising profits, without promoting a responsible financial behaviour throughout the organization’s culture.

The Barometer Cost Management is an annual report conducted by Expense Reduction Analysts, a global leader in cost management and acquisitions, in partnership with the European Business School in Wiesbaden, Germany. The purpose of this study is to present European trends in operational cost management, the economic impact of political shifts over investments as well as assess where additional incomes generated by internal economic efficiency get redirected.


The survey also draws attention to areas with major opportunities for expense reduction such as supply chain management, logistics and transportation costs. 1 out of 5 companies can expect savings of over 10% if it implements cost reduction strategies in these two areas. Generally, European organizations achieve savings of 4.6% of their annual turnover or 2.3 million Euro - taking a 50 million Euro turnover company as an example. In Romania, companies can generate on average over 10% savings in operational costs, through a specialized service.


“Financial services and expenses, energy, gas, transportation & logistics, IT & Telecom, fleet and property management costs are just a part of the cost categories where we often discover opportunities to deliver supplementary incomes for our clients, no matter the industry. We are happy to see that more and more companies are interested in cost optimization, looking to generate saving while maintaining, and most times, improving the quality of suppliers’ products and services,” stated Cristian Ionescu, Expense Reduction Analysts Romania.


In 2016, just 20% of the savings achieved by companies were reinvested in other business areas. The companies who chose to invest in development, redistributed the additional incomes as such: 12.5% in marketing & sales, 11.8% in machinery & equipment and 11.5% to recruit or develop staff. In particular, the top 25% companies in terms of customer satisfaction and growth, invest a higher share of savings in business expansion (+46%), R&D and marketing and sales (both +34%) than the bottom 25%.


“The fact that companies use savings achieved to increase profit also means that this money is not reinvested directly in their growth”, says Fred Marfleet, Chairman of Expense Reduction Analysts. “The results highlight that successful companies use the additional income to improve their situation and make it more sustainable versus competition. When new chances or business models become available these companies have the resources to react quickly and effectively.”


Moreover, the study also concludesone of the biggest challenges for organizations is to achieve sustainable savings. 73% of companies surveyed report that the effect of cost management activities is lost within 3 years. “It seems that companies need to invest more efforts to implement a cost-conscious behaviour in the corporate culture and to identify the best matching tools and KPIs”. External experts like Expense Reduction Analysts could also help to ensure that the sustainability of savings achieved can be significantly longer.


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