Sachin Sharma, founder of ProcureDesk, explains the difference between cost control and cost savings. Cost control stops spending through approvals; cost savings gets better prices on what you already buy. A common mistake: assigning savings negotiations to accounting teams instead of procurement professionals.
So what's the difference between cost control and cost savings? Now, if you are a CFO of a growing company and you've been tasked with reducing spend, you might be wondering, should I do or implement cost control initiatives? Should we do cost savings? So if you're confused about which strategy to implement, this video is for you. Because in this video I'm going to break down the key differences between cost control and cost savings and which one you might want to implement in your company. And stick till the end where I'll share one mistake you must avoid when it comes to implementing either cost control or cost savings initiatives. So if you're joining me for the first time, welcome. My name is Sachin Sharma. I am the founder of procuredesk, where we help companies control spending through automation of procurement and AP processes. So to start with, let me give you an example, right? Cost control is like, think about, you know, turning off the faucet, there's no water at all, right? That's cost control. Like, just stop it. And cost savings is probably equivalent to finding the best price from where you can buy water, right? As an example. So cost control is stop not spending the money. Also cost cost avoidance, cost savings is your ability to get better pricing for things that you already purchase, right? So let's talk more about it. I'm going to break it down into three areas where these are, these strategies are different and how they're different. Let's jump right into it. Number one is the approach you take, right? As I said, cost control is controlling cost. So think about this as, okay, we are spending too much money. We need to reduce our spending, right? So I'll implement a cost control process where everything must be approved by a CFO or a senior manager before it can be. Or you can purchase the product or service from a vendor. And the idea here is that I want to make sure that somebody is checking and saying, do we really need this? And if we don't, let's not buy it, right? That's cost control. That's the approach of making sure that you have proactive cost control through, through approvals and so on so people can decide whether to buy something or not. And let's take an example. Somebody puts in a request for a new laptop and you go to them and said, no, you can just keep using your existing laptop, that's fine, right? So that's the approach you take. Cost savings on the other end is making sure you get the best price. So taking the forward example of laptop, let's say you're looking to purchase a laptop, instead of saying no, you can just keep using the old laptop. Let's say you decide to buy the laptop. So cost savings is now going into the market and finding the best price. The vendor that can provide you the specifications, the warranty, and they have the best price available. Considering other factors, that is cost saving. So the approach difference between the two, right? So hope that makes sense. Number two is the timing of implementation. Cost control is immediate, right? If you don't want to buy it, you just stop it. Cost savings on the other side takes time to show results. And here's why. If you decide to negotiate better cost, somebody got to go look at the data. If you haven't looked at other videos, look for spend analysis where I explain how to do spend analysis. But you do spend analysis to figure out the cost saving opportunities. And once you have done that, then you need to go negotiate that cost. And then you have to implement those revised contracts into your process so you can get those cost savings. It takes weeks to do all that, right? So by the time you start seeing the results, it might take me like a month and a half or two months. So that's the other way of thinking about this is the time, right? If you are kind of you want to control the cost now, do cost control measures. If you want to reduce the cost strategically over a period of time, do cost saving or maybe combine both. The third is focus, right? The focus of the teams. So when you are doing cost control, the focus is on approvals. That is where you want to spend time figuring out where do we need to implement the approvals. From a purchasing standpoint, who should do the approval? What should be my threshold? Right. So you look at your spend data and say, all right, maybe anything over $500 should be approved by CFO, right? That's the stringent cost control you can put in. Or maybe it's $100 for your company, or maybe it's 10,000. Just pick a number, right? That is the cost control focus approvals. Cost savings, on the other hand, is negotiation and it needs a different type of skill set. So here you're looking more from an approach on, okay, who can actually analyze the spending? Who can then go and negotiate the vendors? Do we have the opportunity to reduce the cost because of our volume? Right. For example, if you're only spending $10,000 on office supplies, maybe if you want to just cut down office supplies, the best strategy is cost control, not cost savings. Because your volume of spend is not big enough for you to get better pricing. Unless you're part of a, what's called a GPO global purchasing organization where you can take the advantage of the spend from other companies to get a better cost. But 90% of the times you will do cost control, right? So that's the approach from a focused standpoint. So just to summarize, three strategies or the three differences between cost control and cost savings, number one is the approach here, you know, cost control versus cost savings. Number two, the time it takes. Cost control is immediate. Cost savings takes time, focus. The first one is focus more on controls in terms of approvals. Cost savings is focused more on negotiations and so on, right? So now here's the bonus tip which we mentioned before. So when you're thinking about cost control versus cost savings, one of the main mistake that companies make is having your accounting team work on cost savings. And that's a recipe for disaster. I'll tell you why. Accounting teams are not from a skill standpoint, are not skilled to run negotiations. They are more focused on controls, processes, compliance, and that is their sweet spot. Now asking accounting to kind of go out of their comfort zone and go negotiate pricing with the vendors is generally not a good strategy. So if you are tempted to put your accounting team on cost negotiations, my suggestion would be don't do that. Have somebody dedicated, maybe like a procurement buyer who's focused on cost negotiations. If you don't have a procurement team today, it might be a good time to look into and say, should we invest our resources in hiring a procurement person who is dedicated to kind of going after that spend and so on. So I hope you found this video helpful. If you want more tips on cost control, drop cost control in the comments. And if you like this video, go ahead and hit the subscribe button. Thanks for joining me today and I'll see you in the next video.
