What are the most effective ways to identify areas of waste and inefficiency for a client?

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As an accountant, you may have clients who need your help to improve their profitability and performance. One of the ways you can add value to your service is by identifying areas of waste and inefficiency in their operations and processes. Waste and inefficiency can erode your client's margins, reduce their customer satisfaction, and increase their risks. In this article, you will learn some of the most effective ways to identify areas of waste and inefficiency for a client and how to communicate your findings and recommendations.

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1 Analyze the cost structure

The first step to identify areas of waste and inefficiency is to analyze your client's cost structure. You need to understand how much they spend on different activities, resources, and outputs, and how they allocate their costs to different products, services, or customers. You can use various cost accounting methods, such as activity-based costing, marginal costing, or standard costing, to collect and organize the relevant data. By analyzing the cost structure, you can identify which activities, resources, or outputs are overpriced, underutilized, or redundant, and how they affect your client's profitability and performance.

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Asha Kanta Sharma

Manager - Finance & Accounts @ Opendoors Fintech | Financial Accounting
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To identify waste and inefficiency in a client's operations, a comprehensive process review, stakeholder engagement, KPI analysis, financial statement analysis, benchmarking against industry standards, cost analysis, technology utilization evaluation, customer feedback, supply chain analysis, Lean Six Sigma principles, time and motion studies, employee surveys, energy and resource efficiency evaluation, cross-functional collaboration, root cause analysis, a continuous improvement culture, risk analysis, external consultants or audits, regulatory compliance review, and a SWOT analysis can be conducted. These approaches help businesses gain a comprehensive understanding of their operations and pinpoint areas of waste and inefficiency.

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James W. Murray

Plant Controller Prysmian Group Cables & Systems
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Many times the data is not accurate such as scrap. So Go See it - Gemba view. Go observe the process, see what inputs and outputs there are, map out the process then compare the operational flow to the end result in the financial data or product structure IE-BOM/Route. Bring in the appropriate team to view and validate the physical and data flow. Then review product cost structure. Ask those Why questions- no blame just drive to an improved solution.

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2 Identify the value drivers

The next step is to identify the value drivers of your client's business. Value drivers are the factors that influence your client's revenue, costs, and competitive advantage. They can be internal, such as quality, innovation, or efficiency, or external, such as customer demand, market trends, or regulations. You can use various tools, such as value chain analysis, SWOT analysis, or Porter's five forces analysis, to identify and evaluate the value drivers of your client's business. By identifying the value drivers, you can understand what your client's customers value, what your client's strengths and weaknesses are, and what opportunities and threats your client faces.

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Helena Lauchli, CPA, MACCT

Follow Me Through My Accounting Career
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Regularly monitoring and reassessing value drivers encourage a culture of continuous improvement. Businesses can adapt to changing market conditions, technological advancements, and customer preferences to maintain and enhance their financial position. Alignment with Stakeholder Expectations: Recognizing value drivers helps align the business with the expectations of various stakeholders, including customers, employees, investors, and regulators. This alignment fosters trust and strengthens relationships.

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3 Evaluate the performance gaps

The third step is to evaluate the performance gaps of your client's business. Performance gaps are the differences between your client's actual and desired results. They can be measured by various indicators, such as sales, profits, market share, customer satisfaction, or quality. You can use various techniques, such as benchmarking, variance analysis, or balanced scorecard, to measure and compare your client's performance gaps with their goals, standards, or competitors. By evaluating the performance gaps, you can pinpoint where your client is underperforming, overperforming, or missing out on potential benefits.

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Helena Lauchli, CPA, MACCT

Follow Me Through My Accounting Career
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Performance gap analysis helps in understanding where actual costs deviate from expected or budgeted costs. This insight is essential for implementing cost control measures and identifying opportunities for cost reduction, contributing to improved financial performance. By evaluating performance gaps against budgeted figures, businesses can assess their ability to adhere to financial plans. Understanding variances helps management make informed decisions to reallocate resources or adjust strategies to stay within budgetary constraints.

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4 Prioritize the improvement areas

The fourth step is to prioritize the improvement areas of your client's business. Improvement areas are the aspects of your client's business that need to be changed or enhanced to reduce waste and inefficiency and increase value. You can use various criteria, such as urgency, feasibility, impact, or return on investment, to rank and select the improvement areas that are most important and beneficial for your client. By prioritizing the improvement areas, you can focus your attention and resources on the most critical and rewarding issues and avoid wasting time and money on less significant or ineffective solutions.

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Helena Lauchli, CPA, MACCT

Follow Me Through My Accounting Career
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Understanding and prioritizing financial performance criteria can provide a competitive advantage. Businesses can focus on areas where they excel or have the potential to outperform competitors, leading to a stronger market position. Prioritizing criteria allows organizations to adapt to changes in the business environment. Whether facing economic fluctuations or industry shifts, businesses can refocus their efforts on key performance indicators that remain critical in evolving circumstances.

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5 Propose the action plans

The fifth step is to propose the action plans for your client's business. Action plans are the specific steps and tasks that need to be taken to implement the improvement areas and achieve the desired results. You can use various methods, such as SMART goals, Gantt charts, or PDCA cycles, to design and document the action plans that are clear, realistic, and measurable. By proposing the action plans, you can provide your client with a roadmap and a timeline for improving their business and overcoming their challenges.

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Helena Lauchli, CPA, MACCT

Follow Me Through My Accounting Career
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Develop and document standard operating procedures for cost accounting processes. SOPs ensure consistency and clarity in the execution of cost accounting tasks, reducing the likelihood of errors and discrepancies. Periodically review the effectiveness of implemented changes and adapt action plans as needed. Business conditions, technology, and industry standards evolve, and the cost accounting system should be flexible enough to adapt to these changes.

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6 Communicate the findings and recommendations

The final step is to communicate your findings and recommendations to your client. Communication is the key to ensuring that your client understands and accepts your analysis, evaluation, and proposal, and that they are willing and able to act on them. You can use various formats, such as reports, presentations, or dashboards, to communicate your findings and recommendations to your client in a concise, coherent, and convincing way. You should also use various techniques, such as storytelling, visualization, or feedback, to engage your client's interest, attention, and trust. By communicating your findings and recommendations, you can demonstrate your value and expertise as an accountant and help your client achieve their goals and objectives.

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Helena Lauchli, CPA, MACCT

Follow Me Through My Accounting Career
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Consider the client's preferred communication channels. Whether through written reports, presentations, virtual meetings, or in-person discussions, choose the format that aligns with their preferences for effective communication. Be transparent about the methodologies, assumptions, and limitations of the cost accounting analysis. Transparency builds trust and credibility, and it allows the client to understand the basis of the findings. Summarize the key takeaways in a concise and actionable format. Clearly outline steps the client can take to address challenges, capitalize on opportunities, or optimize costs based on the cost accounting findings.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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What are the most effective ways to identify areas of waste and inefficiency for a client?

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1 Analyze the cost structure

2 Identify the value drivers

3 Evaluate the performance gaps

4 Prioritize the improvement areas

5 Propose the action plans

6 Communicate the findings and recommendations

7 Here’s what else to consider

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