5 Ways to Cut Costs in 2005

Reducing expenditures remains at the top of CFOs' priorities list, even as they turn their attention to revenue enhancement.

Cost-cutting initiatives remain firmly at the top of most CFOs' agenda. In a May 2004 survey of finance executives at more than 150 large companies conducted by New York City-based consulting firm Booz Allen Hamilton, 85 percent of respondents said cost reduction is their highest priority. Nearly 60 percent reported that they are focusing on opportunities to reduce the cost of providing overhead services by trimming nonessential spending, restructuring costs and standardizing service levels. And only 3 percent said they have reduced overhead costs as much as possible.

Ongoing studies by The Hackett Group confirm that cost containment remains most companies' primary objective. "Sixty-one percent of 300 executives who responded to a recent poll said cost cutting was their number one companywide priority," says Richard Roth, Hackett's Atlanta-based chief research officer. "There's still a strong feeling among senior executives that 'if our company does grow, let's make sure our costs don't grow along with it.' "

While the draconian cost-cutting campaigns many organizations implemented during the downturn may already have harvested much of the low-hanging fruit, savvy CFOs can still find opportunities to ferret out efficiencies. Here's a look at five approaches finance executives may want to consider as they plan their cost-cutting strategies for 2005.

1. Look for the easy savings first. Where should CFOs begin their next round of cost cutting? Chris Bogan, CEO of Best Practices LLC, a research and consulting firm in Chapel Hill, N.C., says they should look for areas in which they can drive efficiencies while minimizing disruption. "Best-practice companies start by putting a freeze on entertainment and travel expenditures," he says. For example, "the company could institute a policy whereby employees can only travel with the president's authorization.

"Other top-line cost-cutting areas include consulting and marketing," Bogan adds. After squeezing costs in those areas, CFOs should turn their attention to discretionary spending. "That includes things like training, continuing education and developmental capital [expenditures]," he says. Cost-control initiatives in these areas "typically cause minor internal inconveniences, but they can reduce overall costs by 1 percent to 2 percent or so," he notes.