Cost cutting vs cost optimisation: which protects profit?

Cost cutting vs cost optimisation: key takeaways

Cost cutting vs cost optimisation comes down to what happens to output. Cost cutting removes spend and usually removes capacity with it. Cost optimisation lowers the cost of each unit of work while keeping the output and the standard. Cutting is faster. Optimisation lasts longer and does not push cost back onto customers.

• Cutting: spend falls and capacity usually falls with it.
• Optimisation: cost per task falls and output is protected.
• Cuts made in a hurry often return within a year.
• Use cutting for waste and optimisation for work that must be done.

What is the difference between the two?

Cost cutting is the removal of a cost, usually quickly and across the board. Cost optimisation is the redesign of how work is done so that the same result costs less. The first asks what can be stopped. The second asks what each task should cost and why it currently costs more.

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What does each look like in numbers?

Take an illustrative support team of three costing £103,500 a year and handling 30,000 customer contacts, or £3.45 per contact. Cutting one role saves £34,500, but the remaining two cannot handle the volume, so replies slow and repeat contacts rise.

Optimising keeps the capacity. Removing avoidable contacts, standardising replies and moving routine queries to a managed team could bring the same 30,000 contacts down towards £2 each. The saving is similar, and customers do not notice the change. These are example figures to show the mechanism.

• Cut: £34,500 saved, capacity down by a third.
• Optimise: a similar saving, capacity unchanged.
• Cut: effect seen in a month.
• Optimise: effect seen in a quarter.

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When is plain cost cutting the right call?

Plain cost cutting is right when the spend produces nothing: unused software seats, duplicate subscriptions, reports nobody reads, a service that customers no longer buy. It is also right in a cash emergency, when survival matters more than efficiency. In both cases, speed is the point.

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How do you optimise costs instead of cutting them?

Optimise by working on the process before the budget. Measure what a task costs today, remove steps that add nothing, standardise what remains, and then choose the cheapest reliable way to run it: software, a managed team or your own staff. The budget falls as a result of the redesign.

• 1. Measure cost per task today.
• 2. Remove steps and contacts that should not exist.
• 3. Standardise the steps that remain.
• 4. Choose who or what runs the process.
• 5. Measure cost per task again after 90 days.

• Cost baseline: measure today's cost before you change it
• Process standardisation: one best way, lower cost per task
• The cost lever scorecard: find savings process by process

What are the risks of optimisation?

Optimisation takes longer, needs measurement the business may not have, and can become an excuse to avoid a hard decision. If cash is short this quarter, a three-month redesign does not help. A sensible plan often does both: cut obvious waste now, and optimise the work that has to continue.

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What does this look like in practice?

A pattern we see after a difficult year: a firm trims its admin team to save money, then finds invoices going out late and senior staff answering the phone. The saving on paper is replaced by a larger cost in delayed cash and lost fee-earning hours. Rebuilding the process first, then deciding the team, avoids paying twice.

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Cost optimisation checklist

Ask these questions before any budget line is cut.

• What output does this cost produce?
• Who notices if it stops?
• What does one unit of that output cost today?
• Which steps could be removed without loss?
• Could the same output be delivered a cheaper way?
• How will we know in 90 days that quality held?

• Cost reduction KPIs: the numbers that prove savings are real
• How to cut costs without hurting customer service

Next step

Tell us the cost you are under pressure to reduce and what it currently delivers. We will show you whether it is a candidate for cutting, optimising or leaving alone.