This document provides a framework for analyzing and reducing an organization's controllable expenses. It begins by establishing a baseline of current expense categories and amounts totaling $6-14 million. Opportunities to reduce expenses are then analyzed and recommendations developed. The final step is to implement approved changes to optimize the expense categories. Additional related resources on cost management and analysis are also provided.

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2. Stop Low Business Value
Project
Reduce Apps
Maintenance
Manage Apps Portfolio Reduce Service Level
MANAGE DEMAND
SHIFT TO
VARIABLE COST
Financial Engineering
Manage Apps Spec.
(Mandatory, Useful, Nice
to have)
Manage Technology
Portfolio
Lean IT
REDUCE LABOR COST
REDUCE
TECHNOLOGY COST
Grouped Maintenance Reduce Project Length
Retire non-use
Code/Module in Apps
Adopt Layered Model
CHANGE IT
OPERATING MODEL
IMPROVE IT BUSINESS
PRACTICES
Fiscal Optimization
Improve IT Financial
Knowledge
Increase Span of Control
in IT Org.
IT COST
CONTAINMENT
DEMAND
SUPPLY
CONTROL

3. OPPORTUNIT
Y
Stratification of desktop user types
Automated software distribution
Desktop printer rationalization
Standardized desktop products
Cell phone audits
Centralize portal management
Telecommunications line audits
Consolidation of IT infrastructure
Server virtualization
Storage migration
Reduce business continuity capability
Low
Moderate
Moderate
High
Low
Moderate
Low
Low
Low
Moderate
Low
Low
Moderate
Low
Low
Low
High
High
Moderate
Low
Low
Moderate
Low
Moderate
Low
Low
High
Moderate
Moderate
Low
Low
Low
Low
Moderate
Low
Low
High
Moderate
Moderate
Low
Low
Moderate
Low
High
Low
Low
High
Moderate
Moderate
Low
Time
Financial Benefit Organizational Risk Technical Risk Investment Required
Low Low Low Low Low

4. 10%
30%
30%
30%
COST
BREAKDOWN
• Activities required to “Keep the lights on”/ operate (e.g. property)
• Look for opportunities to increase efficiency.
AIM FOR BEST IN CLASS COST LEVEL
• Activities required by to compete
• Look for opportunities to increase efficiency.
AIM FOR BEST IN CLASS COST LEVEL
• Non-essential capabilities
• Challenges the need to have any cost at all
• Increase efficiency or lower service levels for what you keep
ELIMINATE OR BE PARE DOWN
• 3-6 Differentiating capabilities that build sustainable advantage
• Streamline for effectiveness and efficiency
• Invest in critical activities to reach best-in-class service levels
MAY SPEND MORE THAN COMPETITORS
“Lights-On”
“Can’t Avoid”
Not Required
Differentiating Capabilities

5. EFFECTIVENESS
Improved
Diminished
EFFICIENCY Major Cost Savings
Minor Cost Savings
Streamline new product
development
Align staff roles and
responsibilities across chain
Reorganize field organization to
fewer regions
Standardize supplier
contracts
Outsource selected quality
assurance functions
Reformulate product
components/hardware
Remove underperforming
and complex items
Use 30% less materials
in products
Reduce frequency of delivery (But also
give up service quality)
High Effort Medium Effort Low Effort

6. Initiative A Initiative B Initiative C
EFFECTIVENESS BUILDS TOP OF THE CURVE EFFECTIVENESS DECLINE
Clear Wins
Initiatives that should be pursued under any
scenario, as they improve both effectiveness
and efficiency
Example:
Create online self-service portals that
eliminate the need for call centers
Worth the Trade-off
Initiatives that should likely be pursued,
given an acceptable trade-off of
effectiveness for efficiency gains
Example:
Streamline marginally effective training
and events
Last Resort
Initiatives that may be pursued, given
strategic business objectives, but they come
at the expense of effectiveness
Example:
Reduce product or service quality
INCREASED
EFFECTIVENESS
INCREASED EFFICIENCY (Operating Expense Saving)
B
A
C

7.  Obtain data files and
complete initial review of
controllable expenses
 Analyze and validate client’s
controllable expense
categories and amounts
 Develop recommendations on
savings opportunities and seek
buy-in from client
 Manage implementation
process of
recommendations
 Client files, policies and
interview findings
 Client expense categories
and spend amounts
analysis ready
 Client’s feedback &
buy-in
 Client’s feedback in terms
of scope, resources, etc.
available for
implementation
 Understanding of
categories and spend
amount
 Baseline value,
hypotheses, and savings
opportunities
 Recommendation
statements
 Communication plan,
policies, optimized incentive
program, etc.
OBJECTIVE
OF STEP
KEY INPUTS
KEY
OUTPUTS
ESTABLISH
BASELINE
ANALYZE &
VALIDATE
EXPENSES
DEVELOP
RECOMMENDATIONS
IMPLEMENT
CHANGES

8. Controllable Expense Categories Low
($ millions)
High
($ millions)
Transportation 2.0 3.0
Facilities 1.0 2.0
Outsourcing services 1.0 3.0
Travel 0.5 1.5
Entertainment 0.5 1.5
Fringe benefits 0.5 1.5
Training 0.5 1.5
Total 6.0 14.0

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10. Related resources:
Cost Management Cost Benefit Analysis
Budgeting Model Value Chain Analysis
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