Cost Optimization Techniques & Strategies in Organizations
Cost optimization techniques and strategies have become very critical components of management in the modern business environment. According to Collis and Hussey (2013), competition in the market has become very stiff and it forces firms to come up with unique ways of improving their revenues. Firms are forced to find ways of cutting down their expenses in order to lower cost and maximize profits. Engel (2010) defines cost maximization as finding an alternative that has the most achievable performance within given constraints. From the two definitions, it is clear that cost optimization is a deliberate attempt by a firm to achieve the best using the least possible resources.
The price of oil and gas in the international has been falling drastically since 2014 (Zhu 2015). Leading oil and gas companies such as Abu Dhabi Marine Operating Company (ADMA-OPCO) are under pressure to find ways of operating in an environment where their revenues have been drastically reduced because of the falling oil prices. According to Chowdhury and Taguchi (2016), in an environment where revenues are reduced while the cost of operation remains unchanged or even increased, a firm has to develop strategies that will help in optimizing the use of the limited resources. Strategies such as identifying and eliminating redundant tasks or mechanization have often been used as a way of optimizing costs. In this paper, the researcher will critically discuss cost optimization techniques and strategies at the Abu Dhabi Marine Operating Company.
Discussion of the key arguments and findings from literatures
According to Kothari and Dhillon (2011), every firm in the oil and gas industry is currently struggling with the problem of reduced revenues. Coming up with strategic cost optimization is the dream of every company in the market today. However, it may not be easy to come up with a comprehensive plan that may drastically optimize costs. Such drastic measures can have a serious negative impact on a firm. As such, it is important to develop short-term cost reduction plans that will, in the long run, help an organisation in achieving the desired goals. According to Ryoo (2008), using a strategic cost optimization framework is the best way of making small steps towards a bigger goal. The framework suggests that a firm should use four stages in its effort to optimize its costs.
The first step is to reduce costs by prioritizing spending. Every department will be required to identify areas of spending which can be eliminated without jeopardising the current operations at the firm. Each of these departments will also need to know expenses that can be postponed and those that are very urgent. Sasaki (2012) warns that when postponing financial obligation, the management should be sure that it will have the resources at the future date.
The next step is to remove wastes by increasing efficiency. In this context, Engel (2010) says that efficiency means using the little resources available to achieve the set goals within the set timeline and in the best way possible. At Abu Dhabi Marine Operating Company, increased efficiency would involve eliminating unnecessary labour costs, eliminating spillage or any form of waste, and ensuring that the products are delivered to the market as per the schedule.
The third stage is to enhance flexibility and agility in the business. According to Lauria and Lauria (2014), cost optimization can only be realized if a firm remains flexible enough to accommodate changing environmental factors. The falling oil price is a major change that must be taken into consideration if a firm expects to become sustainable in the market (Zhu 2015). To be flexible, a firm must have the capacity to detect the change and to ensure that its system can adapt to new environmental factors with ease in the shortest time possible. The use of technology may be relevant at this stage. This company may need to employ state-of-the-art machines that can help it standardize its production and lower the cost of labour. As Seuring and Goldbach (2002) say, mechanisation may have high initial costs. However, in the long-term, it has great benefit in terms of improved quality of products and reduced costs.
The last stage is the transformation process where the firm tries to adapt to the changes that have been made over time. At this stage, the firm will avoid making any major changes in its strategies and instead focus on making all the stakeholders understand the new changes that have been introduced (Zhu 2015). When observed correctly, these stages may help Abu Dhabi Marine Operating Company overcome some of the challenges that it faces in the market.
When planning to conduct research, it is important to come up with effective research questions that may help in collecting the desired data from the field. Collis and Hussey (2013) say that with proper research questions, one gets to know the nature of data needed from the field to meet the research objectives. The following are the research questions which are relevant in this study.
What are the strategies that Abu Dhabi Marine Operating Company can use to optimize its costs?
Can these cost optimization strategies help this firm overcome the problem of reduced revenues?
Interest and motivation for the research
I am motivated to undertake this project because I am currently working in the oil and gas industry. As Elleithy (2010) says, the oil and gas industry plays a critical role in the economy of the United Arab Emirates. As such, I am keen on ensuring that this industry remains stable as a way of protecting the economy of my country. I am particularly interested in helping Abu Dhabi Marine Operating Company, my current employer, overcome its market challenges as illustrated in the research questions above. This firm, and the entire oil and gas industry in the country, has been facing serious problems in the market since 2014 due to the declining oil prices in the international market. The cost of production has not gone down, but the revenues that they get have significantly reduced.
Cost optimization techniques and strategies will help this firm come up with alternative ways of production which are cost-effective and more efficient. These strategies will help the management to come up with approaches that are relevant at such times when the income is significantly reduced. As Elleithy (2010) says, cost optimization does not necessarily mean dismissing part of the workforce. On the contrary, it means maximizing the current resources, including human resource, to get the maximum output without having to increase expenses. I hope that through this research, I will be able to help this firm come up with a strategy that does not involve retrenching some of its employees. The country is fighting unemployment and it is necessary to approach this problem in the oil and gas industry from a perspective that will not result in high rates of unemployment.
Feasibility of the study and how to gain access to the data needed
This study is very important not only to the Abu Dhabi Marine Operating Company but also to other oil and gas companies in the country. It is, therefore, important to determine its feasibility and how the needed data will be obtained (Berk, 2010). This study is technically feasible because the researcher has access to the internet and a laptop that will be very critical in conducting the investigations. The study is economically feasible because the researcher intends to rely majorly on secondary sources of data. It means that inasmuch as I may use primary data to help address the literature gaps, the main source of information that will be used shall come from published sources.
Primary data will be collected from employees of Abu Dhabi Marine Operating Company. Data that will be used in this study will come from various sources. Books will be very instrumental in collecting the needed information on this topic. The researcher will also use peer-reviewed articles as important sources of information. Books and journal articles are readily available in the school library (Zhu 2015). Online libraries and other reliable websites will be very important in collecting relevant data. To get company-specific information, the researcher will interview some of the employees of Abu Dhabi Marine Operating Company, especially those who are at the management level.
List of References
Berk, J 2010, Cost reduction and optimization for manufacturing and industrial companies, John Wiley, Hoboken.
Chowdhury, S & Taguchi, S 2016, Robust optimization: World’s best practices for developing winning vehicles, Cengage, New York.
Collis, J & Hussey, R 2013, Business Research: A Practical Guide for Undergraduate and Postgraduate Students, Palgrave-MacMillan, London.
Elleithy, K 2010, Advanced techniques in computing sciences and software engineering, Springer, Dordrecht.
Engel, A 2010, Verification, validation, and testing of engineered systems, Wiley, Hoboken.
Kothari, D & Dhillon, J 2011, Power system optimization, PHI Learning, New Delhi.
Lauria, P & Lauria, T 2014, State department of transportation fleet replacement management practices, National Research Council, New York.
Ryoo, S 2008, Program optimization strategies for data-parallel many-core processors, Illinois University Press, Chicago.
Sasaki, H 2012, Intelligent and knowledge-based computing for business and organizational advancements, Information Science Reference, Hershey.
Seuring, S & Goldbach, M 2002, Cost Management in Supply Chains, Physica-Verlag HD, Heidelberg.
Zhu, J 2015, Optimization of power system operation, John Wiley & Sons Publishers, Hoboken.