Every cost programme produces a number early. Usually it is the size of the opportunity: the gap between what is being paid and what should be paid, added up across parts, categories and suppliers. It is a useful number. It is also the number most often mistaken for a result.
Between an identified opportunity and a change in the P&L sit at least three more stages, and value can leak at each of them.
Four numbers, four kinds of evidence
- Identified opportunity is what analysis says is possible: should-cost gaps, benchmark differences, specification changes. Its evidence is the model.
- Negotiated savings are what suppliers have agreed, with terms, volumes and effective dates. Their evidence is a signed quotation or agreement.
- Implemented savings are what is live in purchase orders and price masters, on parts actually received. Their evidence is transactional data.
- Finance-validated savings are what finance confirms against an agreed baseline in the P&L. Their evidence is a finance sign-off.
Where value leaks
Opportunities go un-negotiated because the evidence is not strong enough, or the supplier is too important to push. Negotiated prices go unimplemented because a price master was not updated, an old purchase order stayed open, or a new part number escaped the agreement. Implemented savings fail to reach the P&L because volumes changed, the mix shifted or the baseline was never agreed.
None of this is unusual. What damages credibility is reporting the first number as though it were the last.
Each stage is reported separately, and none borrows the credibility of the next.
How we report value
Where our mandates include implementation, we track value from analytical identification through negotiation, implementation and agreed benefit validation. We agree the baseline and the evidence for each stage with finance at the start, not the end. And we report the four numbers side by side, so that a chief financial officer can see exactly how much of the opportunity has become money.
It is a small discipline. It is also what makes the next programme easier to approve.