Leadership blog

Cost Reduction vs Cost Control

20 July 2016

Cost Reduction vs Cost Control

No matter how you look at it, mining companies are spending most of their time trying every trick in the book to reduce costs. On the plus side, this unyielding focus is translating into productivity improvement with virtually all the major players targeting large amounts of money in embedded cost savings.

However, companies cannot get complacent and rely on proven cost saving strategies, cost control is still a major contributor to sustainability. There is a difference between cost control and cost reduction, they are not one and the same thing. Of course, they just both bring about the desired results, hence the confusion. This however, needs to be clearly defined if the results are to be sustainable. The elements involved for each need to be clearly understood by companies so actions can be tracked and refined consistently for effective results to be achieved.

When the going gets tough in companies, the first thing that comes to mind is cost reduction. It does achieve the desired result, however, it is a series of creative strategies that are not sustainable. Small impact strategies, such as cutting on refreshments at meetings might be implemented first, when a company goes through a tough time. Then bigger strategies such as staff reduction would surely follow. As much as the concept is quite popular in most industries, especially in mining, it does not help much with the growth of a company. There might be short-term gains but on its own, the strategy is not sustainable. Another way of cost cutting is through using mediocre resources to produce, this might save the company from big expenditures but let’s face it, one needs to spend money to make money. It can never be cheap to run a company, but a company can refine its processes so they deliver value for money. They can ensure that all resources are in a good condition to endure. Instead of looking for the lowest cost in a transaction, one should look instead for the largest value received for every cent spent and spend once to see the returns for a longer period.

It is important for the company goals to be understood at all levels, this enables even the cleaner to know their role in the company and to ensure high standards of service delivery and efficiency. Operational excellence is achieved when we realise the importance of making cost control part of our strategy as a business, at all levels.

Cost control like other deliverables should be embedded onto the DNA of the company. It should be a culture of the company and everyone within the company should understand their role in the overall attainment of the goal. When tough times hit hard, the company should be able to breathe for a while without first taking drastic measures such as staff reductions for cost cutting. Cost control is a series of steps that a business uses to maintain proper control over its costs. This can have a profound positive impact over the long term. The company should routinely attempt to force its expenditure to closely match its budgeted cost structure.

Commodity prices continue to drive a depressed environment characterised by mine closures and they turn everything - from shareholder returns to capital profits – upside down. Mining is an intensive industry, with resources such as water, electricity, transportation (including fuel), labour etc. being used intensively and in bulk / large numbers. This necessitates efficiency on our systems and unfortunately that is where the ball gets dropped most times. Running a business is a chain of processes that are linked together, for the one big event to be a success. Efficiency is the key word in each of the actions for the ultimate results, cost control to be achieved. If efficiency in the way we do things as the company could be the company’s middle name, it would never get to a point of implementing cost reduction strategies, unless it is absolutely necessary. It would never get to a point of having to explain what one’s job function entailed because the impact was not felt or visible enough. Let us practice cost control in our personal space and it will automatically translate into the way we do business.

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