Businesses in the UK waste 5.2% of revenue each year due to poor cost management, according to a survey by the Chartered Institute of Management Accountants (CIMA). In 2015, the total amount wasted was estimated at £194 billion ($275 billion).
Cancelled projects were the most common causes for such losses. Fifty-five per cent of the 2,000 finance professionals polled said that their organisations had wasted money in this area. Forty-three per cent recognised that their organisations had overpaid for goods and services. Thirty-five per cent said unnecessary purchases had been made.
The banking sector was found to be the most profligate, with 35% of the bankers who participated in the poll stating that their company wastes up to 10% of revenue each year, and a further 38% said there was very little adherence to cost-saving in their organisation.
This lack of priority was a common factor amongst respondents in other sectors. Half of the respondents said their organisations had no specific strategy in place to drive cost-competitiveness. Thirty-one per cent said that few or none of their colleagues had a mandate to drive down costs or to take costs into account as part of the everyday decision-making process.
Embedding a cost-conscious culture across the business enables decision-making to focus on return on investment, and the impetus to manage costs effectively has to come from the top of the organisation. Eighty-one per cent of those polled said that promoting a cost-conscious culture was the executive team’s responsibility, while 13% said the responsibility rested with the finance department.
In practice, however, responsibility is rarely assigned to an individual. Just 25% of the organisations represented in the poll have a board member tasked with cost-competitiveness.
Making employees accountable and providing them with incentives to improve cost management is an important step that many companies have yet to take.
The survey was conducted to inform CIMA’s Cost Transformation Model – a planning and control framework for transforming and managing a business’s cost-competitiveness. It can be downloaded here.
—Samantha White (firstname.lastname@example.org) is a CGMA Magazine senior editor.
7 most common causes of waste in UK businesses
Respondents were asked to select the top three factors:
- Delayed projects (75%)
- Inefficient systems and processes (74%)
- Started but subsequently cancelled projects (55%)
- Overpaying for goods and services (43%)
- Unnecessary purchases (35%)
- Excessive remuneration (28%)
- Stock obsolescence (27%)
Source: Chartered Institute of Management Accountants.