RESOURCES
Cost Optimization
SYNOPSIS
Want to identify the highest impact areas to save costs across your organization? The Cost Optimization presentation template helps organize potential cost reduction initiatives to uncover which will bring the greatest reward with the least impact to business efficiency and quality. In place of cost reductions made across the board, Cost Optimization helps execs identify the best opportunities to reduce costs that generate the highest return on investment.
The template includes slides on Cost Categorization, Cost reduction benefit matrix, Cost-saving initiatives and Effectiveness of initiatives, Cost reduction opportunities, Expense management timelines, Robotics potential, TOWS matrix, Cost reduction areas and Value creation, and many more. Plus, read to the end to learn how SpaceX turned cost optimization into a $100B market cap company.
PREVIEW
TOOL HIGHLIGHTS
Cost categorization
To optimize your organization's cost, categorize what they are and their level of importance. This cost categorization slide features a pie chart, linked to Excel, which breaks down the four categories of cost that every organization encounters. They are:
"Not required" costs are those that can be eliminated or cost reductions that cost more than the organization saves due to sacrifices to quality that increases churn. These should be pared down or eliminated completely.
"Differentiating capabilities" are costs that provide a competitive advantage or core competency. These are okay to spend more on because it sets you apart.
"Lights on" costs are the day-to-day operational costs like rents or utilities. These costs should be reduced to the "best in class cost level."
"Can't avoid" costs are the cost of doing business. Execs should also aim for best in class cost level with these. (Slide 6)
Cost reduction benefit matrix
To identify which costs to optimize, use this cost reduction benefit matrix. Each row lists out different cost reduction opportunities. Each is assessed across its financial benefit, time invested, possible risks it could pose to the business, and how much financial investment is required to make the change. When execs see all of the input and output required for each individual cost reduction, they can easily decide which areas are worth the investment to optimize. (Slide 4)
Effectiveness of initiative
Next, use the results from the cost-benefit matrix to plug proposed reduction initiatives into this effectiveness curve to determine if they are a win or not. In this example, initiative B is a clear win, which means it should unquestionably be pursued because it reduces costs and overall efficiency and quality. Initiative A is worth the trade-off, which means it can generate high effectiveness and should be pursued, but it's not as clear of a benefit because it could require more work. Think of this as a high-risk high-return situation. A and B are no-regret moves, but initiative C is a last resort move, which means it can be pursued but might not result in cost optimization due to cut corners that cost revenue as a result of lower quality output. (Slide 8)
Cost reduction opportunities
This slide maps out cost reduction opportunities that correspond to specific parts of an income statement. Execs can plug in the relevant data from their income statement to the linked spreadsheet. The equation calculates what comes in minus what goes out to find the economic value-added. Examine each component to find what challenges it shows, how these challenges can be improved, and the potential results that can be gained if the improvement is made. (Slide 20)
SpaceX business case study
SpaceX is now the second most valuable private company with a valuation of $100 billion, all based on cost optimization. Between 1970 and 2000, the cost to launch a kilogram to space averaged around $18,500 dollars. Elon Musk started the company to minimize the cost per launch for low Earth orbit satellites. At the time, the cost of raw materials on the commodity markets was only 2% of the total cost of a rocket — a major cost reduction opportunity. But the key to SpaceX's cost optimization was its differentiating capability to make rockets reusable.
The Falcon 9's booster can re-enter the atmosphere, land, and fly again, which lowered the cost per kilogram into space to only $2,720 — a near 7x decrease. These boosters have launched 141 times, with certain boosters landing 11 times. At the most recent tally, the Falcon 9 costs $28 million per rocket, while SpaceX's satellite rideshare program can cost buyers as little as $1 million per launch. A fully reusable rocket could bring the total cost per rocket launch down to $2 million with Starship, which can carry over 100 tons. While Falcon 9 can currently carry 60 satellites per launch, Starship could carry roughly 240. This would lower the cost per kilogram to $22 dollars. This would be a clear win, zero-regret move.
CONCLUSION
If your organization needs to identify the right costs to optimize, you need this presentation. Don't stop to the free slides, download the full Cost Optimization presentation template and customize it so you get more slides on Cost saving initiatives, Cost reduction opportunities, Expense management timelines, Robotics potential, TOWS matrix, Cost reduction areas and Value creation, and many more to save time and hours of work.
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