5. Breakpoints – The Five Steps for Reducing Costs

The Five Steps for Reducing Costs
Describe your Target – The target is the “area” we are seeking to improve. Most often this would be thought of in terms of a “process” but there is no restriction on how we define the target areas we are working on.

Identify Break Points – For the target area, all of the Break Points that exist need to be identified. They also need to be described well enough that we (and others) can easily recognize them at any time.

Describe your Actions – Describing your actions is the way you clearly identify the steps you could take to eliminate causes of work. By identifying Actions and the number of Break Points each Action will eliminate, the benefit from each Action becomes clear.

Do the Cost and Benefit Assessment – The Cost and Benefit assessment adds several items that are important in helping us build our Cost Reduction Plan. What we need to know is: How Much? How Long? How Beneficial?

Build your Cost Reduction Plan – Using the Cost and Benefit assessment we can now build our Cost Reduction Plan. We do this by choosing which Actions are to be taken, and the order they are taken in.

Let’s explore these Steps in more detail:

Step 1 – Describe your Target Area,

ideally in terms that are understandable to others in your organization. Your Target Area will often be a “process,” as this is one of the most common terms used in describing the work people do.

Step 2 – Identify Break Points.

For the target area, identify each of the Break Points that exist within it, then record them in a descriptive enough way that others (and you if you come back later) will immediately know what you mean.

Note – This may initially present a challenge as it is not something we commonly have done in the past. Persevere and do your best to identify the Break Points in your target area and enough information will be available for you to build your cost reduction plan.

In praise of the Customer focused organization (and the best at what they do!)

When is a good business model a really good business model?

When (perhaps)
… the customers keep coming back for more (76 million per year)?[i]
… you are consistently outperforming you industry rivals (record breaking profits in Q1 2012)[ii]?
… the shareholder value is growing year on year?[iii]
… you consistently drive out costs and grow revenues?[iv… receive positive feedback from yourchosen customer base?
… when your strategy is clearly stated and easy to understand by employees, management, shareholders and customers alike[v]?
By all the above criteria Ryanair the Irish airline is a terrific and much envied success. And yet you may hear many criticisms of Ryanair however as Michael O’Leary, their ebullient CEO points out, they are not Ryanairs customers.
In fact he wishes they never darken his door again as the Ryan Air offering is specifically not aligned with “picky, choosy time wasters” (his words not mine).
What is the secret?
Part of the magic is a complete focus on understanding their chosen customers successful outcome, and while that may not include you or me, it is certainly the bulk of travellers in Europe whose repeat business has helped Ryan Air outperform the sector for the last decade.

So have you personally and has your business really clearly articulated who is your customer and then defined the business you are in?

[iv] BBC News 21 May 2012: Budget airline Ryanair has reported record profits as fare rises helped to offset a sharp rise in fuel costs. Net profit for the year to March was 503m euros ($643m; £406m), up 25% on a year earlier. Revenue rose by 19% to 4.3bn euros.
[v]Ryanair’s objective is to firmly establish itself as Europe’s leading low-fares scheduled
passenger airline through continued improvements and expanded offerings of its low-fares
service. Ryanair aims to offer low fares that generate increased passenger traffic while
maintaining a continuous focus on cost-containment and operating efficiencies. (http://www.ryanair.com/doc/investor/Strategy.pdf)