CEO ask CFO: I need you to cut our operation cost this year by 10%. Where should you start?

Well, find a better finance guy first then you will see where you can place your scissors. Cheers

The CEO's request of cutting the yearly operating cost by 10% is crystal-clear. Yet, I would like to offer viewing the issue from another angle – that of impact evaluation of the planned cost cutting. Well, maybe you want to cut costs because of the tight liquidity your firm is currently facing, or your margin is fast eroding due to the shrinking market share of your main product/ service lines, or because of your incurring operating costs shooting well above the industry’s average recently, etc. And you want to bring things under control, then prosper, again. If that is the case (and I guess most likely it is), cost cutting is more of a tempting, traditional measure but by no means the only solution available (which is often used by those who are perhaps more inclined to competing mainly on costs…)

Being your CFO, I would suggest that: (i) First, we start from the (near future) impact that we want to make by performing thing(s) we are going to do now (say “We want to restore the recent business stability, and continue to prosper”); (ii) Identify all options (theoretically) available to improve our profit level and cash flows (E.g., cost cutting(s), sales boosting, business process improvement, etc.); (iii) Evaluate the options and select the most viable one for given conditions/ resources available, with proper allocation of planned changes balanced across various units of the firms (so not only the marketing and advertisement or training budgets, etc., to suffer from the cuts...) ; (iv) Prepare the action plan and execute it; and (v) Evaluate the execution against the planned outputs/ impact, and make adjustments, or changes, as necessary.

It sounds a bit like a textbook, I admit. Yet it would broaden our perspective and enrich our repertoire of instruments and solutions that we could choose and apply in responding to the rather daunting challenges most of us are experiencing at this testing time now.