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COST AUDIT

Great Prairie Group’s Cost Audit is a quick check on your plans and rationale for cost reduction and optimization.   The audit asks critical questions to evaluate areas of strength and weakness as well as help your team improve the success of your cost optimization initiatives.  These questions include the following:

  • What is your company’s Return on Net Assets (RONA)?
  • What is your company’s Weighted Average Cost of Capital (WACC)?
  • How does the company’s RONA compare to its WACC?
  • What is the profitability of the business?
  • What is the asset leverage of the business (Average Net Operating Assets/Revenue)?
  • How does your company’s cost structure compare to leading competitors?
  • What are your cost advantages?
  • What are your cost disadvantages?
  • What is your company’s target cost structure?
  • How much do you need to reduce cost by to meet your target objective?
  • What type of cost reduction are you targeting?
  • What projects are you pursuing?
  • How effective is your organization at reducing costs on the whole?
  • Will the accomplishment of these cost projects close the strategic gap?
  • If not, what else will you need to do?
  • What is your path to success?

The specificity of your answers will help you determine the level of strength of the strategic rationale supporting your cost reduction initiatives.

Strategic Cost Reduction

Eliminating unnecessary costs and assets.

Companies are squeezed for profits all the time with pressure coming from multiple fronts:

  • customers have more information making pricing more transparent;
  • product proliferation is increasing cost to serve;
  • globalization is creating a new class of competitors;
  • digitization is changing the business model softening barriers among sectors;
  • competitors’ actions are more diverse and more complex to predict than just five years ago, requiring quicker responses and increased deployment of resources;
  • new technology start-ups are reducing product life cycles;
  • the firm’s organizational structure is growing larger, harder to manage, adding layers of management and more indirect cost;
  • suppliers are getting leaner and more powerful, exerting higher costs of raw materials.

The net effect to the firm is downward pressure on prices, ever-increasing costs, and larger deployment of resources.

 

The Challenge. The reality is that not every dollar of cost is equal. Some costs drive customer value creation and profits directly; others do not. The goal is to know which costs, activities, and efforts yield the optimal return to the firm and its stakeholders.

What We Do

We assist clients achieve their company’s optimal cost and asset structures
designed to meet ROA targets. What we do for our clients:

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