(SmartPros) In an uncertain economic environment, corporate financial executives attack the one area where they believe they have the greatest control: costs. But many companies don't approach cost-cutting as effectively as they might.

According to Cost Cutting: Can You Do It Throughout the Business Cycle?, produced by SmartPros FMN Online, the most common cost-cutting mistakes include: cuts in areas critical to future growth and success; cuts based on erroneous assumptions rather than fact-based analysis; and costs eliminated without addressing root cause issues, such as inefficient business processes.

Good cost management should yield not only short-term fixes to keep a company operating but also long-term gains to keep it competitive. The problem is that many companies see cost reduction as an end in itself, whereas cost management should be viewed as a catalyst for change that facilitates the growth and evolution of organizations.

During tough economic times, the instinctive nature of financial executives may be to slash such variable costs as R&D, new technology or advertising, and perhaps execute layoffs. However, this approach may not be the best defense.

According to Jon Scheumann, director with the business process consulting firm Gunn Partners, there is a very direct relationship between cost cutting and the business cycle. Due to the ever-changing business cycle, where costs don't necessarily match the changes in revenues and profits, businesses are unable to react quickly enough or to see forward sufficiently enough to adjust their cost structures to react to how the business cycle is shifting, Scheumann explained. As a result, companies are unable to adjust their Selling, General and Administrative (SG&A) cost structures rapidly enough to adjust for the downturn in the economy, or in their particular business cycle.

To improve cost management within an organization, Scheumann believes culture is the primary factor to consider.

"The way you get your company focused on managing and then maintaining your cost structure is by building a culture that has that as a part of its makeup," explained Scheumann. "If you have a culture that is not really attuned to cost management, or not paying attention to your cost structures, you'll never get the outcome you want."

Scheumann listed other variables worth utilizing, such as shared services, process management, and VPO, but maintained culture is the most important consideration.

"It takes a very strong leadership team to create the proper focus on a company's cost structure and then to maintain it. The easier path is to react in the moment," he said.

This article highlights just a few of the topics covered in FMN Online's multimedia segment, Cost Cutting: Can You Do It Throughout the Business Cycle?, available now as one CPE credit for $44.99, or included with a subscription to FMN Online.

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