Cost cutting is a measure used by a company or government to reduce costs with the goal of increasing efficiency, addressing funding shortfalls, and remaining functional. Cost cutting may be done in response to economic pressures and it can also be used as a business tool to become more competitive. Many people can be involved in the process of deciding where costs should be cut and by how much. This can be a controversial activity, depending on what kinds of cuts are made.
Decisions to cut costs are based on a variety of needs including concerns about the availability of money, the inability to remain competitive in a market as a result of rising costs, and the desire to run a business more leanly. Making decisions about cost cuts usually starts with an audit to see where money is being spent. Audits break down spending by department or sector and provide detailed information about expenses in individual departments to give the team working on developing a cost cutting plan an idea of how monies are currently being used.
With this information in hand, a cost cutting team can start identifying areas of the budget where overspending is occurring, with the goal of trimming obvious fat first. This may include cutting benefits, reducing hours and production, changing the organizational structure to create fewer executive positions, and letting employees go. If costs are still too high after an initial pass of cuts, the team drills down to look at other programs that can be targeted for elimination or suspension; for example, a car manufacturer might decide to temporarily stop working on a new feature.
While making cost cutting measures, people must think in the long term. Some cuts may save money in the short term, making them appealing choices, but in the long term they could add to costs. Suspending developing of new products or redesigns of existing products and features, for example, could cost a company money by reducing future profits and forcing current customers to look elsewhere to meet their needs.
Cost cutting on the government level often attracts significant attention from members of the public. Cuts to social services as well as programs like education can be highly controversial and people may fight those cuts, arguing that they do a disservice to the population. Proposals for alternate cuts like suspending salary increases for members of the legislature may be fielded by opponents to cost cutting plans.