As today's markets shift and financial leaders start to find their cost bases grow faster than assets under management, it is important that chief financial officers must be able to pull the right cost levers.
Managing expenses has become a top priority for many institutional asset management boards, chief financial officers and executives, according to KPMG.
CFOs, like institutional investors, must explore a range of tactical cost optimisation levers aimed at realigning existing cost structures. Focus of these initiatives falls into three broad areas of consideration:
Budget Reviews. Financial leaders must carefully reassess their budgets based on actual utilisation and realigning forecasts accordingly; discretionary budgets are a great place to start.
Some investors look into budget optimisation by closing open headcounts after a set period of time. Institutional investors are also eliminating budget lines completely, particularly for items that have been deemed by the business as no longer required such as old software licenses. This enables the business to reallocate funds to new and emerging needs that may not have been forecasted.
Procurement. CFOs must go back and right-size spending to align to a very different current and future reality. This will also include assessing current utilisation of systems and outsourced services and then using that information in next contract negotiations.
Rationalising vendors, particularly system, application and data vendors across the front, middle and back-office functions, must also be observed. Further, there is a greater use of consumption and policy management techniques to improve control over costs on a go-forward basis.
Resource optimisation. Financial leaders must be looking at their resource productivity and workforce plans to identify high and low performers and to realign their capabilities to actual current and emerging needs. They must aim to optimise role productivity by reducing duplication and aligning utilisation.
The shift from tactical to transformative
Tactical cost optimisation levers are a great way to score quick wins and achieve longer-term tactical savings, according to KPMG. However, the real money comes when one starts to fundamentally change their cost structures through more transformative activities. Operating models will likely need to be disrupted. Difficult questions should be asked — and answered.
Some of the biggest cost saving opportunities are driven through operating model simplification.
In this note, it must be understood that new technologies and tools have allowed the modernisation and simplification of middle and back-office activities. Some of the more agile institutions are also starting to consider how they might simplify processes and models in the front office.