Cost Cutting Measures

Submitted to: Mr. Rajesh Jhamb

Submitted by:
Varun Sharma um10308
Samdeep Soni um10305

Cost of capital
Cost of capital refers to the cost of equity if the business is financed solely
through equity or to the cost of debt if it is financed solely through debt.
Many companies use a combination of debt and equity .
The cost of various capital sources varies from company to company, and
depends on factors such as its operating history, profitability, credit
worthiness, etc.
Debt financing has the advantage of being more tax-efficient. However, too
much debt can result in dangerously high leverage, resulting in higher
interest rates sought by lenders to offset the higher default risk.

Types of cost
Fixed costs are expenses that do not change in proportion to the activity of
a business, within the relevant period or scale of production. For example, a
retailer must pay rent and utility bills irrespective of sales.
Variable costs by contrast change in relation to the activity of a business
such as sales or production volume. In the example of the retailer, variable
costs may primarily be composed of inventory (goods purchased for sale),
and the cost of goods is therefore almost entirely variable.
Average cost per unit is equal to total cost divided by the number of goods
produced.
Marginal cost is the change in total cost that arises when the quantity
produced changes by one unit.

Cost cutting measures

Measures implemented by a company to reduce its expenses and improve
profitability.
Cost cutting measures may include laying off employees, reducing
employee pay, switching to a less expensive employee health insurance
program, downsizing to a smaller office, lowering monthly bills, changing
hours of service and restructuring debt.
E.g.- Bank of America decided to layoff 30000 employees in 2012 while RBS
layed off 1000 employees in India in 2013

Tools & Technique of cost cutting

Just-In-Time (JIT) System -The main aim of JIT is to produce the required items,
at the required quality and quantity, at the precise time they are required. JIT
purchasing requires for the items where too much carrying costs associated with
holding high inventory levels. Purchasing system reduces the investment in
inventories because of frequent order of small quantities.
Target Costing -Target costing refers to the design of product, and the processes
used to produce it, so that ultimately the product can be manufactured at a cost
that will enable the firm to make profit when the product is sold at an estimated
market-driven price. This estimated price is called target price.
Activity Based Management (ABM) - Activity based management is the use of
activity based costing to improve operations and to eliminate non-value added
cost. The main goal of ABM is to identify and eliminate non-value added activities
and costs.

Tools & Technique of cost cutting

Life Cycle Costing - Life cycle costing estimates and accumulates costs over a
product's entire life cycle in order to determine whether the profits earned during
the manufacturing phase will cover the costs incurred during the pre-and-post
manufacturing stage.
Kaizen Costing - Kaizen costing is the process of cost reduction during the
manufacturing phase of an existing product. The Japanese word 'Kaizen' refers to
continual and gradual improvement through small activities, rather than large or
radical improvement through innovation or large investment technology.
Business Process-re-engineering - Re-engineering is a complete redesign of
process with an emphasis on finding creative new ways to accomplish an objective.
The aim of business process re-engineering is to improve the key business process
in an organization by focusing on simplification, cost reduction, improved quality
and enhanced customer satisfaction.
Total Quality Management (TQM) - Under the TQM approach, all business
functions are involved in a process of continuous quality improvement.

Tools & Technique of cost cutting

Value chain - Value chain analysis is a means of achieving higher customer
satisfaction and managing costs more effectively. The value chain is the linked set
of value creating activities all the way from basic raw materials' sources,
component suppliers, to the ultimate end-use product or service delivered to the
customer.
Bench Marketing - Bench marketing is a continual search for the most effective
method of accomplishing a task by comparing the existing methods and
performance levels with those of other organizations or other sub-units within the
same organization.
Management Audit - Management audits, also known as performance audits, can
be used to facilitate cost reduction in both profit and non-profit organizations.
Management audits are intended to help management to do a better job by
identifying waste and inefficiency and recommending a corrective action.

Tools & Technique of cost cutting

Planned value (PV) - PV is the budgeted cost for the work scheduled to be
completed on an activity.
Earned value (EV) - EV is the budgeted amount for the work actually
completed on the schedule activity .

Actual cost (AC) - AC is the actual cost incurred in accomplishing work on

the schedule activity or WBS component during a given time period. This AC
must correspond in definition and coverage to whatever was budgeted for
the PV and the EV (e.g. direct hours only, direct cost only, or all costs
including indirect costs).

Tools & Technique of cost cutting

Cost performance index (CPI) - A CPI value less than 1.0 indicate a cost
overrun of the estimates. A CPI value greater than 1 indicates a cost underrun of the estimates. CPI equals the ratio of the EV to the AC. The CPI is the
most commonly used cost-efficiency indicator.
CPI=EV/AC
Cumulative CPI - The cumulative CPI is widely used to forecast project costs
at completion. CPIC equals the sum of the periodic earned values divided by
the sum of the individual actual costs .
SPI=EV/PV

Ways to cut cost and increase cash flow

There are two primary rules, used by all properly managed companies, from
one-appraiser firms to Fortune 500 companies:
1. Pay your bills only when they are due.
2. Get your income as soon as possible.
Fortunately for appraisal firms, most of the costs are variable. For example, if
your work volume drops, your photo processing and appraisal fee split labour
also drop.

But fixed costs, such as rent and support staff, can cause financial problems
when appraisal assignments drop off quickly.

Ways to cut cost and increase cash flow

Cash management
Pay no bill before its time. Don't pay any bills until they're due. See who has
a late charge, and who doesn't.
Exercise dormant lines of credit. Frequently business owners set up lines of
credit they don't use. The bank may drop your line of credit if it is not used
for a certain period of time, so be sure to check their use requirements.
Closely monitor your three sources of cash:
a) Appraisals in process, not yet completed
b) Appraisals billed out, but not yet collected
c) Paid billings: cash on hand

Ways to cut cost and increase cash flow

Rent - office and storage
Renegotiate your lease to a lower rent, or a temporary lower rent while business is
slow. If office vacancies are high, your landlord will probably prefer reduced rent to
no rent.
Sublet unused office space to appraisers or non-appraisers. Or, move out of your
larger office space to a smaller sublet office.
If you need to move or downsize to a smaller office, but have a lease, work with
your landlord. Maybe he or she will let you sublease, make a partial payment of the
rest of your lease, or move to a smaller space.
Shop around for low-cost storage space. We have to save our files for at least 5
years, and many of us save them for much longer. What to keep and throw out in
files is an individual decision, but you can shop for a lower storage cost.
Get rid of excess stored stuff, such as old office furniture. Sell it or give it away.
Don't pay storage costs for things you really don't need. Don't be a packrat.

Ways to cut cost and increase cash flow

Pricing
Keep close track of your competitor's costs. Don't underbid or lose work
because you overbid. When fees are changing, don't get left behind and lose
valuable assignments from overbidding, or income from underbidding.

Don't offer lower prices to a client that isn't price sensitive. Why give away
your profits?
Know your costs on appraisals. The high fee jobs may not be the most
profitable. It may be more profitable to set up referral alliances with
appraisers in other geographic areas, rather than spend the time traveling
and doing extra research on an area you're not familiar with

Ways to cut cost and increase cash flow

Personnel
Cut back principals' salaries. Pay yourself last, after paying all other expenses.
Although this may seem obvious, many companies have developed serious
financial problems because the owners kept taking out large salaries.

"Lease" your employees. Instead of laying off an experienced secretary, lease him
or her to another company until business picks up again.
Use temporary help whenever possible when your business substantially increases.
That's how the mortgage lending industry handled the 1991 to 1993 substantial
increases in lending volumes
Use part-time support staff. They don't require benefits and usually have more
flexible hours. Laying off a part-timer, or cutting back their hours, is much easier
than a long-term loyal, full-time employee.

Ways to cut cost and increase cash flow

Use an outside payroll service such as Paychex or ADP to cut bookkeeping
payroll costs. Or, do it yourself by using a simple software program like
Quick books. Don't use a CPA to do your bookkeeping.
Broaden staff responsibilities. For example, instead of paying an outside
bookkeeper, have your secretary do it. If you have to lay off a full-time
secretary because your work has dropped, consider letting a less
experienced associate appraiser do part-time clerical work. At least they'll
have some income. Instead of having outside firms do janitorial and delivery
services, have your employees do it. It's better than getting laid off, or
sitting around worrying about getting laid off.

Ways to cut cost and increase cash flow

Taxes
Don't overpay your income tax quarterlies. If you anticipate that your
taxable income will drop this year, don't pay taxes based on last year's
income. Work with your accountant to pay quarterlies based on a more
accurate estimate. If you've already overpaid your quarterlies, ask your
accountant about a quick refund, using Forms 4466 and 1138.
Close to year-end, schedule a tax-planning meeting with your accountant to
shift income and expenses. For example, shift income into the next year to
decrease this year's taxes.

Ways to cut cost and increase cash flow

Supplies
Shop for the best prices. Don't pay too much attention to percent discount.
Look at the bottom line. No one pays full retail. Purchasing supplies in bulk
may be worthwhile.

Use office warehouse companies like Office Club. They usually offer the
lowest prices. Many will deliver. Don't forget discount stores like Price Club,
Wal-Mart, and Costco. Many carry some of the most-purchased office
supplies, like paper, pens, and laser-jet cartridges. You don't always need to
buy brand names.
Keep close track of inventory so you don't have to pay someone to "run
over" to the nearby high-priced office supply store.

Ways to cut cost and increase cash flow

Equipment's
Sell or donate excess office furniture and equipment. Storage space is
expensive. You can sell it to employees, the public, or the vendor (on
consignment). Donate it to local charities or schools.

When leasing equipment, get an option to cancel due to closure or

consolidation. We should not get an "evergreen clause", where the contract
always continues unless you give 30 days notice. They are difficult to
cancel, as the expiration date is hard to monitor.
Renegotiate your equipment leases
Reduce phone lines. If you have fewer staff, you need fewer phone lines.
Cancel some of the optional features you don't really need.

SBI
State Bank of India (SBI) is an Indian multinational banking and financial
services company. It is a government-owned corporation with its
headquarters in Mumbai, Maharashtra.
Initially the Imperial Bank of India became the State Bank of India. In 2008,
the government of India acquired the Reserve Bank of India's stake in SBI so
as to remove any conflict of interest because the RBI is the country's
banking regulatory authority.
As of December 2013, it had assets of US$388 billion and 17,000 branches,
including 190 foreign offices, making it the largest banking and financial
services company in India.

Comparison of Income & Expenditure

25000

Description

May 2013

May
2014

Difference

Variance
20000

Total Income

16798

19448

2650

16%

Total Expenses

15126

17316

2190

15%

1673

2109

436

26%

Operating Result

15000
May-13
May-14

10000

C.O. Int. Receivable

15829

19036

3207

20%

C.O. Int. Payable

12917

14683

1766

14%

4585

6462

1877

41%

Net Result

5000

0
Total Income

Total
Expenses

Operating
Result

C.O. Int.
Receivable

C.O. Int.
Payable

Net Result

Movement of Earning, Expenses & Net Result for May

2013 & May 2014 of State Bank of India
25000

20000

15000
May-13
May-14
10000

5000

0
Total Income

Total Expenses

Operating Result

C.O. Int. Receivable

C.O. Int. Payable

Net Result

Overheads for May 2013 & May 2014 of State Bank of

India
Figure in Crores
Description

May 2013

Telephones

Electricity
Charges

&

Gas

Postage

Repairs
Maintenance

&

May 2014

Difference

14

13

105

103

29

18

58

72

Reasons

-1 The telephone charges have decreased because earlier

Rs. 1000 were paid to each employee but now Rs. 500
is paid for their telephone bills. Moreover, instead of
two sim cards, now only one sim card is given to each
employee.
-2 The electricity and gas charges have decreased
because the energy consumptions measures provided
by the authority are being righty followed now by all
the branches.
-11 The postage overhead cost has decreased because now
the e-mail and other electronic services are being used,
therefore the decrement.
14 The repairs and maintenance cost has increased
because there are many branches whose maintenance
were done this year and thus there is a hike in the cost.

Overheads for May 2013 & May 2014 of State Bank of

India
Description
Stationary, Printing &
Advertising

Travelling Expense & Halting

Allowances

Medical Expenses

Misc. Expenses

May 2013

May 2014

Difference

Figure in Crores

Reasons

48

41

-7 The stationary, printing and advertisement costs have decreased

because of the use of electronic services and also since the bank
has now gained a good reputation, the advertisement cost has
reduced.

107

95

-12 Halting Allowance has decreased because it depends on the

employees for how many days they have to stay and since this
year, the period of stay was less than last year, the expense has
decreased.

37

41

4 The medical expenses have increased because from last year, the
health-issues of the employees have increased and thus we find
an increment of the cost in this particular account.

293

43

-250 The miscellaneous expenses has decreased because earlier,

separate accounts were not maintained for each kind of expenses,
but since from this year, there has been introduction of separate
account and the miscellaneous expenses account has been done
away with, therefore we notice such a reduction in cost.

Overheads for May 2013 & May 2014 of State Bank of

India
Description

May 2013

May 2014

Difference

Figure in Crores

Reasons

Controllable Overheads

692

426

-266 The controllable overheads cost have decreased because in most

branches, the norms were followed and therefore we find a
reduction in the total cost.

Non
Overheads

171

245

74 Non controllable overheads have increased because most of

them are fixed in nature and therefore the cost cannot be
decreased.

863

671

-192 Total overheads cost has decreased due to the effective use
of the measures lay by the authority and adapted efficiently
to gain cost reduction.

Controllable

Total Overheads

Comparison of Overheads for May 2013 & May 2014 of

State Bank of India
1000

Figure in Crores

900
800
700
600
500
400
300
200
100
0

May-13
May-14

Movement of Overheads for May 2013 & May 2014 of

State Bank of India
Figure in Crores

1000
900
800
700
600
500
400
300
200
100
0

May-13
May-14

PUNJAB NATIONAL BANK

Punjab National Bank (PNB) is an Indian financial services company based in
New Delhi, India. Founded in 1894, the bank has over 5,800 branches and
over 6,000 ATMs across 764 cities. It serves over 80 million customers.
PNB has the distinction of being the first Indian bank to have been started
solely with Indian capital that has survived to the present.
The Government of India (GOI) nationalized PNB and 13 other major
commercial banks, on 19 July 1969.

PUNJAB NATIONAL BANK Income & Expenditure

Figure in Crores
Parameters

Mar09

Mar10

Mar11

Mar12

Mar13

Mar14

CAGR (%)

Operating Profit

5690

7326

9056

10614

10907

11384

14.88%

Net Profit

3091

3905

4433

4884

4745

3343

1.58%

Deposit

209760

249330

312899

379588

391560

451397

16.56%

Advance

154703

186601

242107

293775

308796

349269

17.69%

Total Business

364463

435931

555005

673366

700356

800666

17.05%

Balance Sheet of Punjab National Bank as on March 31,

2014
Figure in Crores
S. No

Bank Statements

March 2014

March 2013

Difference

Variance (%)

1.

Capital

362

353

+3%

2.

Reserves & Surplus

35533

32323

3210

+10%

3.

Deposits

451396

391560

59836

+13%

4.

Borrowings

48034

39620

8414

+21%

5.

Other Liabilities and Provisions

15093

15089

+0.02%

6.

Cash & Balances With RBI

22245

17886

4359

+23%

7.

Balances with Banks & Money at

Call & Short notice

22972

9249

13723

+15%

Balance Sheet of Punjab National Bank as on March 31,

2014
Figure in Crores
S. No. Bank Statements

March 2014

March 2013

Difference

Variance (%)

8.

Investments

143785

129896

13889

+11%

9.

Advances

349269

308795

40474

+13%

10.

Fixed Assets

3419

3357

62

+2%

11.

Other Assets

8727

9762

-1035

-11%

12.

Contingent Liabilities

216274

214279

1995

+1%

13.

Bills for Collection

20325

17531

2794

+16%

14.

Interest Earned

43223

41885

1338

+3%

Balance Sheet of Punjab National Bank as on March 31,

2014
S.
No.

Bank Statements

March 2014

March 2013

Difference Variance (%)

15.

Other Income

4576

4223

353

+8%

16.

Interest Expended

27077

27036

41

+0.15%

17.

Operational Expenses

9338

8165

1173

+14%

18.

Provisions & Contingencies

8041

6159

1882

+31%

Comparison of Balance Sheet of Punjab National Bank

for March13 & March14
Figure in Crores
500000
450000

400000
350000
300000
250000
200000
150000
100000
50000
0

Series1
Series2

Movement of Balance Sheet of Punjab National Bank for

March13 & March14

Capital
Reserves & Surplus
Deposits
Borrowings
Other Liabilities and Provisions
Cash & Balances With RBI
Balances with Banks & Money at Call & Short notice
Investments
Advances
Fixed Assets
Other Assests
Contingent Liabilitites

Bills for Collection

Interest Earned
Other Income
Interest Expended
Operational Expenses
Provisions & Contingencies

NPA
NPA (Non-Performing Asset) is an industrial phenomenon which indicates
industrial sickness. The national growth of a country particularly country
like India depends upon the growth and health of SMEs. The so called banking
reform are targeted towards killing the Sick units rather than curing them.
Effect of NPA on Bank
The day to day operating the account becomes difficult as Bank starts
adjusting money deposited against their dues.
The reputation of the borrower in the market is adversely affected.
The Bankers attitude towards the borrower becomes more arrogant,
authoritative and threatening, instead of extending helping hand to them to
get out of the situation.
This leads to demoralization of the borrower who has been working with the
Bank for number of years and as customer has contributed in the profit of
the Bank.
The principle of customer care is neglected and customer torture begins.
This brings the borrower in a helpless situation and at the mercy of the
Bank

NPA
Banks interest income can fall down and accounted on the basis of
receipt.
Profitability of Banks is caused harmfully due to offering of doubtful
debts and ensuing contain it as terrible debts.
ROI (Return on investments) is decreased.
The adequacy ratios of capital are termed as NPAs and are following into
its estimation.
Maximizes the capital price.
Variance of liability and assets will expand.
EVA (The economic value addition) by banks get trouble for the reason
that EVA is similar to the profit of net functioning less capital cost
and
It margins funds recycling.

Reasons for NPA

Economic slowdown in the National and International Sectors. Here, bank
just can't do much.
Default by So called Ultra High worth Corporates and Individuals SBI, the
leader of the consortium of banks that have lent funds to Kingfisher
Airlines, has an exposure of Rs 1,457.78 crore to the struggling firm. SBI's
exposure is the highest among any of the lenders to the airline, followed by
IDBI Bank (Rs 727.63 crore), Punjab National Bank (Rs 710.33 crore), Bank of
India (Rs 575.27 crore) and Bank of Baroda (Rs 537.51 crore).
Credit Management is not a thing of FOCUS for the present leadership of
SBI. They are busy in playing the game for Individual Margins through SBI
Life and SBI Mutual Fund. The focus of the Higher Management has been
shifted to earning more PERSONAL Commissions through cross selling of
the policies of SBI Life and SBI Mutual Fund

Energy consumption in Banks (RBI Guidelines)

It will be beneficial if lights and fans are switched-off before leaving the seat or during lunch hours.
It will be better for the energy saving purpose if monitors are switched-off when not in use.
Scheduling switching on and off of lights and A.Cs on by 10:00 AM and switched off by 5:00 PM at offices/branches
except Air conditioners of server room can be used in order to decrease the cost of electricity.
24 deg. C or above temperature in AC area shall be maintained as reducing the temperature further by over 1 deg. C can
consume approximately 3% more power. Therefore this will help in electricity saving.
Display/showcases can be turned off at night to save electricity consumption.

The reduction of the number of lifts operating during non-peak hours at offices/branches (i.e. 11:00AM to 1:00 PM and
3:00 PM to 4:30 PM) and residential buildings (i.e. 11:00 AM to 5:00 PM) can save the cost.

Suggestions for cost cutting

The bank has 14 stationery departments to supply A4 size papers, ball pens, pins and clips to 14
circles of the bank. These departments employ several hundred workers. Does a bank need such a
division when a Flipkart.com can take care of such needs? Similarly, it has 14 processing centres to
scrutinize new depositors forms, employing at least a couple of thousand people. Its a mystery why
SBI needs data processing centres for every circle when most foreign and new private banks run one
centre to process such data across India.

Yet another cost centre is the currency chests that SBI has historically been managing on behalf of
the Reserve Bank of India. Of the 4,200 currency chests across India, SBI runs 2,200 or 52% of them
while its market share in loans and deposits is around 17%. Assuming that each currency chest on
average needs about six armed guards, more than 13,000 such armed guards are on the payroll of the
bank. While cash management is a critical activity for the banker to the nation, surely there are
modern cash replenishment and logistics alternatives that can minimize use of guards and space.

Another area where the bank must look into is its 41,000-odd ATM network for the group. In November,
the SBI group roughly accounted for 41% of the 380 million outstanding debit cards (and 45% of the
total 530 million transactions) but its share in the ATM network was far less, at 30%. As a result,
the banks customers use other banks ATMs for withdrawal of money. Under norms, up to five such
transactions are free. While the customers make free transaction at other banks ATMs, SBI needs to
pay Rs.18 per transaction. Indeed, SBI also makes some money while other banks customers use its ATMs
but thats far less than what it pays to other banks. It possibly needs to take a look at the
locations of its ATMs to increase the footfalls. It can also explore whether it can charge on its ATM
use. There are roughly 8 million ATM transactions a day and even if it charges Rs.1 per transaction,
it can earn Rs.300 crore a year.

Suggestions for cost cutting

The biggest challenge before the bank, at this point, is monitoring its bad assets, about 60% of which originate
from mid-corporates and relatively large among the small and medium enterprises (SMEs), the companies which are
not diversified, and another 25% from low-ticket accounts from retail, agriculture and small businesses. The
bank must give up its traditional model of focusing on manual supervision which is almost impossible when one
needs to track millions of accounts. Apparently, sometime back it had set up an account tracking and monitoring
platform, called ATM, for real time monitoring of stressed accounts, but it has not been put to proper use.

Loss through ATM

According to SBIs data, its employees transact about 280,000 ATM card-swipes in other banks cash machines per
month. This costs the bank about Rs. 42 lakh plus taxes. Every card swiped at other banks ATM makes that branch
richer by Rs. 15. For SBI, this is reducing profits by a staggering Rs. 5 Crore a year.

Bank can thus ask the employees to use their own banks ATM to carry out the transaction; this will help the
bank to have stronger relationship with employees. This step is an addition to the slew of measures being taken
by the bank to reduce expenditure.

At present the first five transactions in the non- parent bank are free of cost, and the parent bank has to pay
the cost. This would mean that each bank would have to foot the bill for these transactions. It has been found
out that ATM interchange fees also increased to Rs 273 Crore, a 29% increase, at the end of December 2013.
Further it has been discovered that bank will go slow on hiring of employees as well, because the bank has
noticed an upsurge of 35% in the expenses of the staff within a couple of years.