Cost reduction

The Devil’s Advocate™ →Go uptown In which the curmudgeonly old sod puts the world to rights. Index — Click ᐅ to expand: The Devil’s Advocate Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

Cost is not the opposite of (monetisable) value, and it is not the same as waste. A process may have a value because there is a cost to it. If you get rid of the cost, you get rid of the value. This is why no-one could make money out of email. It took away a cost, and meant the monetisable value of the abstract action of sending and receiving written communication dropped to nil.

Costs may arise largely as follows:

Personnel

Personnel from Sales, KYC, Onboarding, Credit, Trading, Tax, Legal/Negotiation, Operations. Costs include hidden costs like pension, redundancy expenses, national insurance and so on. All other things being equal, you can address these costs as follows:

• Downgrading: Reallocate work from more expensive units to cheaper ones. So, the negotiation process moves from legal to the documentation unit, to operations.
• Relocation: move work to a lower cost jurisdiction where a like-for-like personnel are cheaper: moving document management from London to Birmingham, Belfast, Madrid, Krakow, Cape Town or Bangalore.
• Outsourcing: Contract work out to third party service providers who may manage their own resources in lower cost jurisdictions, but in any case can be switched on and off easily

Real estate

A square foot of office space in Bangalore is 75% cheaper than one in London. So - if you have to have a personnel-heavy process then , all other things being equal, it makes sense to move it. Right?

• Downgrading won’t affect your real estate spend
• Relocation will (but don’t forget the one-off costs of having to acquire new premises)
• Outsourcing will (but you will pay for this through your service fee; but the outsourcer is incentivised to locate itself in the cheapest possible place).

Systems

Systems permitting communication and collaboration between the Personnel involved in a negotiation is a fixed cost (in that is not so much a function of time). But not the costs here increase where you are relocating or outsourcing parts of the workflow.

Consumables

Ink, paper, pens, yellow stickies. In the scheme of things de minimis, but you’d nonetheless be horrified at the total cost. Does technology obviate some of these issues, or amplify them? It's the technology paradox.

See also

• The seven wastes of negotiation