This presentation shows that insufficient resources are being used to reduce costs compared to sales. Cost reduction makes as much (if not more) NAV (Net Added Value) to the "bottom line" profits of an organisation

1. COPP 4 PROFIT
Cost of Poor Performance 4 Profit
“Life isn't about waiting for the
„perfect‟ storm to pass ....
It's about learning to
dance in the rain”.
By: Nigel W. Dawes
Vice President Copyright protected
Areopa S. E. Asia No unauthorized copy without Authors permission

2. Introducing
Areopa
The firm of the future .... Today!
A virtual global organisation
Est‟d. Belgium 1987
SAM‟s; CAP‟s;
3,000 SME‟s globally
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3. Why many organisations fail to focus
on cost reductions!
What makes good companies great?
• Having „an eye‟ for detail
• Doing the things ordinary co‟s neglect
• Having the ability to adapt
• Having the willpower to invite change and
embrace the positive changes
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4. What makes good companies great?
People are not against change ....
But against being changed!
People have to want to be open to new
ideas; new thinking; new strategies.
They have to want to change .... But how?
Only when they have reasons &
understanding for change.
Then they „see‟ the benefits of change ....
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5. Extraordinary times
Extraordinary measures needed .....
Many focus on sales ......
Even though customer/buyer
numbers may have been depleted
So an alternative focus is req‟d .....
To reduce operating costs
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6. Reduce operating costs
But where to start?
Most people default into „department mode‟
But departments do not create the problems
Departments do not create re-work
Departments do not create wastage
Departments do not make inefficiencies
People do!!
So it is the „people level‟ we should focus on
(not the department level)
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7. Level of detail of the business
processes
» Level 1 Conceptual level Process
Owners
» Level 2 Departmental level A
B
»Level 3 Hand off level
C
» Level 4 Task level
D
» Level 5 Programming level
E
This is where inefficiencies, re-work,
down-time, & wastage occurs
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8. COPP ® & T.A.P.E. Grid ® Measurement Tools
Cost Of Poor Performance
Takes you right to the cause of the problem
“Treat the cause not the symptom”
Where you are losing MOST money
•12% Lost thru’ non-timeliness & inaccuracy !
•25% Lost thru’ non-productivity !
•33% Lost thru’ non-efficiency / rework !
T.A.P.E. Grid Measures
Timeliness; Accuracy, Productivity & Efficiency
Takes you directly to the worst performing
processes
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9. Let‟s back-track a moment
We mentioned sales previously:
So let‟s compare ..... Ask yourself
Do we pay a bous or commission for sales?
Do we employ sales people?
(or outsource & hire sales consultants?)
Do we invest in advertising and marketing?
Do we provide other sales incentives to key
employees? (Entertainment, lunches etc.)
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10. So it‟s reasonable to expect ....
Then why not do the same for cost
reduction?
Pay a bonus or commission
Employ cost reduction people
Hire expert consultants
(only those who teach you “how to
fish”)
Provide incentives to employees
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11. Net Added Value (NAV)
The answer is for financial reasons:
Identify the monetary net added value of
your Sales NAV and Cost Reduction NAV
-If we sell $1 worth of product, how much
does that sale impact our profit?
-If we reduce our cost by $1, how much
does that savings impact our profit?
In € Euros
or $ Dollars
or B Thai Baht
Or whatever currency you work with
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12. The Calculation
Example “A”
ABC Co. there is a 5% net profit.
Each sales $, profit is only 5 cents. (5% X $1 = $.05)
If sales increased by $1,
Then profit increased by 5 cents Net Added Value
If ABC Co. reduces their cost by $1,
Then their profit increases by $1 NAV
Every $ saved moves directly to net profit.
*Examples after all expenses deducted & exclude taxes
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13. The Calculation (cont ...)
20 Sales $
ABC Co. would have to sell $20.00
worth of product in order to have the
same net effect as reducing cost by $1 !!
In other words a $1 reduction in costs
Is equivalent to a $20.00 sale
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14. So what next?
• Collaborate:
• The need to inform the whole workforce
of your serious intent to make the
company more efficient by reducing:
Wastage Rework
Inefficiencies Downtime
Create an action plan ....
an Improvement Plan
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15. Create an 8 C‟s Improvement Plan
1. Create a position/department that has
the specific task of cost reduction.
“The Change Bureau”
2. Consultant: Hire a cost reduction
consulting firm that can provide you
with a fresh perspective.
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16. The Improvement Plan
3. Cash: Provide employee‟s with cash
incentives to reduce cost.
4. Cost reduction goals: Set and reward
managers for their achievement.
5. Commission: Offer payments to cost
reduction consultants/employees for
implementing savings programs.
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17. The Improvement Plan
6. Connect with your employees:
Become a cost conscious Role Model.
Eliminate irresponsible spending as a
manager.
7. Communicate the fact that cost
reduction is equally important to sales.
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18. The Improvement Plan
8. Calculate your spend on sales promotions
Sales commissions Sales Bonuses
Sales discounts Marketing sales
Promoting sales Sales incentive
Sales lunches Customer incentives
Wine, dine & entertainment Others
Total????
Then match this amount into .....
The Change Bureau
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19. The Result?
The immediate result will demonstrate
just how serious you are in your intent
to bring about change in the
organisation
This sends a clear message to every
employee in the organisation.
Next you will start to see the actual
results in financial improvements
taking place
(within second month of
implementation)
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20. So what are you waiting for?
GET DANCING IN THE RAIN
And then sing about the results
And Areopa will provide your umbrella
Areopa guarantees a 80% reduction of the negative
customer perception – as measured by the TAPE ® grid
and 50% reduction of the costs of poor performance as
measured by the COPP ® calculation
and reduce the 33% lost thru‟ rework
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21. CONTACT COORDINATES
Nigel W. Dawes
Mobile: + 66 (0)81 0044116
nigel.dawes@areopa.com
AREOPA
Koningin Astridlaan 201 B5
B- 2800 MECHELEN
BELGIUM
Tel.: +32 (0)15 433.217
Fax.: +32 (0)15 411.170
www.areopa.com
info@areopa.com
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