Managing Costs Does Not Start When the Numbers Disappoint

In many organisations, proactive cost management only truly makes it onto the agenda when pressure mounts: disappointing revenue, tightening margins or a constrained cash position.

Most organisations believe they can act on costs when needed. In practice, it turns out that a large part of the cost base is already locked in. It also becomes clear that turning around a culture that lacks cost awareness generates significant resistance and therefore delay. The result is a situation where cost management no longer connects with the organisation’s long-term strategic objectives.

When profitability comes under pressure, the boardroom reflex is often predictable: swift intervention, across-the-board cost cuts, and the organisation goes into lockdown. Understandable, but rarely optimal.

Because organisations that only look at costs when under pressure are, frankly, already too late.
And more importantly: organisations that treat costs as a calculation are missing what the boardroom conversation is really about Cost management is not a calculation. It is a choice, especially when business is good!

 

Structural Cost Management

Embedding structural cost management within the planning and control cycle delivers a range of clear benefits:

Improved profitability
A more efficient cost structure leads directly to stronger returns.

Room to invest
By keeping costs structurally under control, organisations create the cash capacity to invest, which is essential for realising strategic ambitions.

Greater flexibility
Continuous insight into the cost structure not only provides a clearer picture of the condition of the business, but also of its agility when market conditions shift. In a crisis, decisive action becomes possible immediately.

A cost-conscious culture
Ongoing attention to costs shapes behaviour across the organisation, building awareness of the importance of using resources efficiently. This supports profitability and reduces the shock response in times of crisis. Ownership must be clearly assigned to budget holders.

More effective use of resources
Even when the overall cost level appears acceptable, a critical analysis will reveal whether resources are actually deployed where they add the most value. This also opens boardroom conversations about reducing costs in certain areas to create room for investments that promise greater efficiency.

Cost Management: Not a Spreadsheet, but a Priority

The boardroom conversation should not primarily be about cutting costs. It should be about allocating scarce resources:

• here do we believe our future lies?
• Are the investments we have made actually delivering the returns we expected?
• Where should we be investing more?
• Are we allowing costs to rise with inflation year after year, and is that proportionate to our revenue growth?
• And the hardest question of all: where do we stop?

As long as cost reduction stays generic (“everyone cuts 5%”), the real choices remain invisible.

 

Structural Cost Management: Anchored in the Planning & Control cycle

Boards that truly have their costs under control do not manage them incidentally. They manage them structurally, anchored in their planning & control cycle and fully aligned with their strategic ambition.

1. Strategy: where do we commit, and where do we step back?

This is where the fundamental choices are made. Working from a portfolio growth strategy: what should the business do more of, what less, what is needed to remain distinctive, and how does all of this affect revenue and margins under different scenarios?

This is where boardroom discussions need to surface, not just about where you invest, but also about which activities, systems or structures you intend to wind down over time.

Insight into variability during strategic sessions is essential: what can you influence, and when?

This is often where things go wrong.

Not all costs are equally flexible, and certainly not at the same point in time.

• Some costs can be influenced immediately
• Andere pas op middellange termijn
• And a portion is locked in for the long term

The risk?
Organisations do not always have a clear sense of this variability. To be able to adjust certain costs three years from now, action is sometimes required today. Waiting until pressure builds is too late, because by then a large part of the cost base is already fixed.

Think of lease contracts that are silently renewed, the closure or consolidation of warehouses and factories, works council consultations required before headcount reductions, or IT contracts that roll over automatically.

If the big structural items never make it onto the boardroom table during strategy discussions, what remains in the years ahead is only the small, flexible portion of the cost base to work with. That is rarely enough to make a real difference, let alone to anchor a solid and executable cost strategy..

Timing is therefore a governance responsibility.
Not just how much you spend, but above all: how agile your cost structure is when you need it to be.

This is also the moment for boardroom discussions on the allocation of resources based on two contrasting approaches: the “Cheese Slicer ” and the “Apple Corer”: Precisely because there is still time to act, and because the decisions are directly linked to strategy.

The cheese slicer feels safe.
Every department gives something up, the pain is shared, and the decision is made quickly.

But that apparent fairness masks the real problem: strategy remains untouched, and so do the inefficiencies.

The Apple Corer takes courage.
It means genuinely questioning one activity, system, factory or cost line:

• Do we still need this?
• Does this still add value?
• Does this still fit our strategy?

That is where tension arises: between board members, between departments, and sometimes between reason and emotion.

But that is also where the choices are made that will determine profitability for the next three to five years.

 

2. Budgeting: translating choices into resources

In the budgeting round, these choices become concrete. Not by allowing costs and capital investments to rise automatically with inflation, or by applying a uniform percentage reduction across the board, but by redistributing resources:

• The starting point is the three to five year strategic ambition
• Allocate resources accordingly: less to what contributes less, more to where the real difference is made

This is where clear governance responsibilities come into play:

• CEO: direction and commercial scenario planning
• CFO: financial discipline and financial scenario planning
• Together: consistent decision-making
• Board: consistent communication throughout the business, walking the talk
• Business: translating their budget into concrete plans and actions

 

3. Monthly steering: insight and dialogue

Throughout the year, reporting provides insight into:

• Actuals versus budget
• Longer-term trends and deviations, including a forward-looking view
• Profitability and cash development

The CFO plays a leading role here:

• delivering clear cost and profitability reports promptly after period close
• aligning cost targets with the underlying non-financial KPIs
• conducting benchmarks
• maintaining a rolling twelve-month forecast aligned with strategic objectives
• raising the alarm early when actuals deviate, with concrete recommendations.

But the real value lies in the boardroom conversation:

• Are we still on the right course?
• Are we seeing developments that require action, and if so, what are we going to do about them?
• Are budget holders in a position to deliver what is being asked of them?

 

4. Course correction: cheese slicer or apple corer?

When results fall short, the question returns:

how do we intervene?

• The cheese slicer is quick and broad, but often superficial
• The apple corer is more targeted, more impactful, and more structural

Organisations that understand their cost structure and its variability have the advantage.
Not only do they know where to intervene; they also know whether it is still possible to do so.

 

 

In Closing

Cost management may not be the most inspiring topic.

But organisations that do it well do not treat costs as a residual. They use them as a strategic steering instrument. And they understand one thing very clearly:

You are not just managing costs. You are managing your ability to manage them..

 

Would you like to explore this further?
Effectief kostenmanagement loont. Effective cost management pays off. From CFO Netwerk, we are happy to think alongside you about what a practical and effective approach to cost management could look like within your organisation.