Build a strict, streamlined and modern cost management model

Cost management is one of the important vital issues for any business. For SME companies or startups, this is even more important because the smallest loopholes and losses can sink the ship.

Many business owners and business executives often "lose sleep" because of the constant waste and loss, the costs keep increasing rapidly but the trickle of revenue is not enough to compensate. spending, or worry about unplanned expenses causing businesses to stagger. 

Together Bizzi Learn about the strict, streamlined and modern cost management model in this article!

Key challenges in enterprise cost management

Have you ever wondered why your business can't optimize profits? Maybe one of the main reasons is because you haven't really focused on effective cost management. Here are the challenges:

• Visibility and Control:
  • Lack of Clarity: Businesses often struggle to have a holistic view of costs spread across different departments and locations. Incomplete or inaccurate data can hinder the ability to identify areas of cost savings.
  • Missing Real-Time Data: Late or outdated financial information can influence decisions. Having real-time visibility is important for quickly solving problems and making informed decisions.
• Data Quality and Accuracy:
  • Data Segment: Information is often stored in different systems or departments, leading to data fragmentation. Integrating data from different sources can be difficult and lead to inconsistencies.
  • Data Quality: Inaccurate data, such as duplicate entries or classification errors, can lead to inaccurate analysis and decision making based on erroneous information.
• Compliance and Risk Management:
  • Regulatory compliance: Complying with constantly changing legal requirements is challenging. Non-compliance can result in fines and reputational damage.
  • Identify Risks: Identifying and minimizing financial risks can be complex, for example fraud risk or supplier-related risk.
• Managing Supplier Relationships:
  • Supplier Diversity: Managing relationships with multiple suppliers, each with unique terms, conditions and performance metrics, can be challenging.
  • Dependent Risk: Over-reliance on one supplier or group of suppliers can open the door to disruption, and managing this risk requires careful planning and diversification.
• Track Expenses and Reduce Costs:
  • Manual Process: Reliance on manual processes to track expenses can be time-consuming, error-prone, and impact performance.
  • Identify Cost Saving Opportunities: Identifying areas where costs can be reduced without compromising quality can be difficult. This requires detailed analysis of cost models and an aggressive approach to cost control.

By understanding these challenges, businesses can implement effective cost management solutions to improve profits and enhance competitiveness.

“Three layers of defense” cost management model © 

Faced with such challenges, SME businesses need an effective and streamlined cost management model and method that can be deployed quickly with limited resources. Through experience in consulting and applying technology to manage costs for businesses of many different sizes, Bizzi experts have summarized the best practices to develop a cost management model and method. charge is called “THREE LAYERS OF DEFENSE” ©. 

This cost management model is designed to help manage the entire life cycle of a cost from before - during - after it is incurred, thus ensuring strict control.

Three layers of defense include:

Layer 1 – Setup

The first three things to do are setup: 

1. Internal spending rules
2. Establish an operating budget
3. Make a spending plan

Internal financial regulations (also known as Internal Financial Rules) is a document that stipulates the principles and regulations of financial management within an organization. In financial regulations, Internal spending rules according to departments and levels is necessary. The purpose of this regulation is to create an orderly, transparent and effective financial management system.

Based on the business plan and financial regulations, prepare an operating budget allocated according to:

• Business Unit
• Department
• Rank

Detailed budget allocation according to business structure will help monitor, control and analyze costs in many different dimensions. 

Based on the agreed budget, create detailed quarterly and monthly expenditure plans for each business unit and department to help manage and forecast accounts payable and cash flow in the quarter to be proactive in planning. business. 

Layer 2 – Control

To achieve control, the important thing to do is to decentralize expense approval. This is the process of identifying and assigning specific rights and responsibilities to individuals or departments within the organization to approve and manage the expense approval process.

The objective of this is to ensure that the expense approval process is carried out in an organized, efficient manner and in compliance with financial management principles. Normally, good cost management companies will have a decision-making matrix based on two common dimensions: level and value to be approved.

Once you have policies, regulations and approval authority, it will be easy to identify costs that are not approved according to policy and authority to make appropriate adjustments.

Layer 3 – Supervision 

The main monitoring is periodic and real-time monitoring, multi-dimensional analysis of indicators and cost items compared to the budget to make timely adjustments if there are deviations from the budget plan.

These indicators and cost items need to be monitored periodically and in real time: 

• Actual difference compared to plan, 
• proportion of cost items, 
• Unusual expenses arise. 

Multi-dimensional analysis (departments, cost items, suppliers...) helps to evaluate in detail assumptions related to costs, understand the nature of types of costs according to the specifics of the business model to have appropriate management strategies.    

The "Three layers of defense" © cost management model is an effective solution to help SMEs and startups manage costs strictly, leanly and modernly. This model is designed to manage the entire lifecycle of costs, from the time they are incurred until they are paid, helping to ensure effective cost control. 

To successfully deploy the “Three Layers of Defense” © model, businesses need commitment from management, close coordination between departments and investment in appropriate technology.