Cost reduction program

A cost reduction program is a plan to cut expenses in order to improve profits or cash flows. When a cost reduction program is intended to counteract a short-term decline in operating results, it is more likely to be targeted at discretionary costs, which are those costs that do not have a short-term impact on company performance, such as maintenance and employee training costs. When the cost reduction program is instead intended to counteract a longer-term decline in results, the focus is on paring away products and programs that are less likely to generate profits or cash flows over the longer term. A cost reduction program may be combined with a strategic shift, where older product lines and programs are pared back in order to provide funding for the new direction of the business.