Cost Reduction Case Interview: Complete Guide (2026)

Author: Taylor Warfield, Former Bain Manager and Interviewer


Cost reduction case interview


Cost reduction cases are a common type of case interview. While they may sound simple, cost reduction case interviews require more business knowledge than people think.

 

I’m a former Bain Manager and interviewer and in this guide, I’ll walk you through everything you need to know to crush cost reduction case interviews. You'll learn the cost frameworks that actually work and see plenty of examples.

 

But first, a quick heads up:

 

Learning case interviews on your own can take months.

 

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What Is a Cost Reduction Case Interview?

 

A cost reduction case interview is a business scenario in which a company needs to cut costs and you need to figure out how.

 

Your client might be struggling with shrinking profit margins. They might be preparing for an economic downturn. Or they might just want to get more competitive by running leaner than their rivals.

 

In good economic times, cutting costs frees up cash for expansion, new products, or outmaneuvering competitors. In bad times, cost reduction keeps struggling companies alive.

 

The basic premise is always the same. Profit equals revenue minus costs. If you can't grow revenue fast enough, cutting costs is the other way to improve profitability.

 

Here's what determines whether you’ll succeed in your cost reduction case interview. You can't just cut costs everywhere. You need to find the right costs to cut without destroying the business in the process.

 

Common Cost Reduction Case Scenarios

 

You might encounter cost reduction cases in any industry. Here are the most common scenarios.

 

  • Manufacturing companies often face rising input costs or need to improve operational efficiency. You might need to optimize their supply chain, streamline production, or reduce waste.

 

  • Retail businesses struggle with rent, labor, and inventory carrying costs. Cases might involve store closures, better inventory management, or supply chain improvements.

 

  • Service companies have labor as their biggest cost. You'll often look at workforce productivity, technology adoption, or process improvements.

 

  • Tech companies face pressure to scale efficiently. Cases might focus on reducing customer acquisition costs, optimizing cloud infrastructure, or streamlining development processes.

 

The specific industry changes but the thinking process stays remarkably similar across all of them.

 

Cost Reduction Case Interview Frameworks

 

Below are some useful frameworks to consider for your cost reduction case interview. However, don't just memorize them. Understand when to use each one and tailor them to the specific case you are solving for.

 

1. Fixed vs. Variable Costs

 

This is the most basic way to segment costs. It works for almost any cost reduction case.

Fixed costs stay the same regardless of how much you produce. Rent, salaries, insurance, and equipment depreciation are typical fixed costs.

 

Variable costs change with production volume. Raw materials, hourly labor, shipping, and utilities usually fall into this category.

 

Why does this matter? 

 

Fixed costs are harder to reduce without major changes like closing facilities or laying off staff. Variable costs can often be reduced through better procurement, improved efficiency, or volume negotiations.

 

2. Value Chain Analysis

 

The value chain breaks down everything a company does into distinct activities.

 

  • Primary activities: include inbound logistics, operations, outbound logistics, marketing and sales, and service

 

  • Support activities: include procurement, technology development, human resources, and firm infrastructure

 

Each activity has associated costs. By analyzing the value chain, you can identify where costs are concentrated and which activities might be inefficient.

 

This framework works especially well for manufacturing and operations-heavy cases.

 

3. Cost Categories by Function

 

Sometimes the simplest approach is best. Break costs down by department or function.

 

  • Research and development

 

  • Manufacturing or operations

 

  • Sales and marketing

 

  • General and administrative

 

These categories are straightforward and easy for interviewers to follow.

 

The key is going deeper within each category. Don't just say "we should reduce marketing costs." Specify whether you mean advertising spend, events, sales force compensation, or something else.

 

4. Process-Based Approach

 

This is how consultants actually work on real cost reduction projects.

 

Start by segmenting and prioritizing costs. Identify the biggest cost buckets and focus there first.

 

Then do internal and external benchmarking. Compare your client's costs to competitors, industry standards, or their own historical performance. This reveals which costs are truly out of line.

 

Next, identify process improvements. Look at how work actually gets done. Where is there waste, duplication, or inefficiency?

 

Finally, calculate costs and benefits. Quantify potential savings, estimate implementation costs, and create a realistic timeline.

 

This approach shows sophisticated thinking and mirrors real consulting work.

 

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How to Solve a Cost Reduction Case Interview

 

There are five major steps to solving a case reduction case interview.

 

1. Clarify the Objective

 

Never assume you understand the problem. Ask clarifying questions upfront.

 

  • What's the specific cost reduction target?

 

  • Is it a percentage reduction or an absolute dollar amount?

 

  • Over what timeframe?

 

  • Are any areas off limits?

 

  • Why does the company need to reduce costs now?

 

  • What's happened to costs recently?

 

These questions set you up for success in the rest of the case.

 

2. Structure Your Framework

 

Take a minute to organize your thoughts on paper. The interviewer expects this.

 

Choose the framework that fits the situation best. For most cases, I'd start with either fixed vs. variable costs or a process-based approach.

 

Draw it out clearly. Your framework should be MECE, which means mutually exclusive and collectively exhaustive. Every cost should fit into exactly one category and your framework should cover all key questions of the case.

 

Share your framework with the interviewer. Walk them through your approach before diving into analysis. This shows structured thinking and gives them a chance to redirect if needed.

 

3. Analyze the Data

 

The interviewer will give you information to work with. Sometimes it's a chart. Sometimes it's just verbal information. Either way, extract insights from it.

 

Look for trends over time. 

 

  • Are costs increasing? 

 

  • By how much? 

 

  • Which categories are growing fastest?

 

Compare to benchmarks if available. How does your client stack up against competitors or industry averages?

 

Calculate key metrics. 

 

  • Cost as a percentage of revenue

 

  • Cost per unit

 

  • Cost per employee

 

Whatever makes sense for the case.

 

Identify the biggest opportunities. Where is the money? Focus your recommendations on areas with the most potential impact.

 

4. Develop Solutions

 

Now propose specific, actionable ideas for reducing costs.

 

Be concrete. Don't just say "negotiate better with suppliers." Say "consolidate suppliers from 15 to 5 key partners and use that leverage to negotiate 10-15% price reductions."

 

Think about implementation. 

 

  • What would it take to execute each idea?

 

  • How long would it take? 

 

  • What resources would be needed?

 

Consider risks and trade-offs. 

 

  • Will cutting this cost hurt quality?

 

  • Will this damage employee morale? 

 

  • Will this reduce customer satisfaction?

 

Prioritize your recommendations. Lead with the highest impact, most feasible ideas. Save the long-term transformational changes for later.

 

5. Deliver Your Recommendation

 

At the end of the case, synthesize everything into a clear recommendation.

 

  • State your answer directly: "I recommend the company focus on three areas that can deliver $50 million in annual savings..."

 

  • Support it with your analysis: Reference specific findings from the data you analyzed.

 

  • Address key risks and next steps: Show you've thought beyond just the numbers.

 

Keep it concise. You don't need to repeat everything you discussed. Hit the highlights and move on.

Cost Reduction Case Interview Example

 

Let me walk you through a realistic example so you can see how this all comes together.

 

The Situation

 

You're consulting for a mid-sized defense contractor that makes helicopters and fighter jets. Their costs have been rising for two years. They need to cut $200 million from their annual cost base of $5 billion.

 

Clarifying Questions

 

You'd start by asking some questions. 

 

  • What's driving the cost increase?

 

  • Are revenues also growing?

 

  • What's the timeline for achieving these savings?

 

  • Are there any areas we can't touch?

 

The interviewer tells you that avionics costs have grown significantly. Revenues are flat. They need savings within one year. Everything is on the table.

 

Framework

 

You decide to use a combination approach. Start with cost categories, such as materials, labor, overhead, R&D. Then, drill down into the biggest category using process analysis.

 

You sketch this out and share it with the interviewer.

 

Analysis

 

The interviewer shows you that avionics represents $1.5 billion of total costs, nearly a third. This is where costs have grown most.

 

They give you a chart showing the company works with three different avionics suppliers across four projects. You notice they're buying the same components at different prices depending on project size.

 

You calculate that if they consolidated purchases and paid the lowest price across all projects, they'd save $85 million just from one supplier.

 

If you extrapolate to all three suppliers, that's potentially $255 million in savings. That exceeds the target.

 

Recommendation

 

You recommend the company consolidate avionics procurement. Instead of each project negotiating separately, create a centralized procurement function that buys in bulk.

 

This will deliver $250 million in annual savings by leveraging purchasing power and standardizing components where possible.

 

Implementation will require reorganizing the procurement function and getting buy-in from project managers who currently control their own purchasing. But the financial impact justifies these changes.

 

You also flag that this approach could work for other component categories beyond avionics.

 

Common Cost Reduction Case Interview Mistakes

 

I've seen smart candidates make these mistakes repeatedly in their cost reduction case interviews. Don't be one of them.

 

Mistake 1: Cutting Everything Equally

 

Across-the-board cost cuts are lazy and destructive. They hurt high-performing areas as much as wasteful ones.

 

Instead, be surgical. Cut waste aggressively. Preserve or even invest in areas critical to competitive advantage.

 

Mistake 2: Ignoring Revenue Impact

 

Some costs directly drive revenue. Cut them, and you'll hurt sales more than you save.

 

Always consider the relationship between costs and revenue. A $10 million cut that reduces revenue by $30 million is a terrible idea.

 

Mistake 3: Forgetting About People

 

Cost reduction often means layoffs or restructuring. This is painful and affects real people's lives.

 

Show some awareness of this. Discuss change management, communication plans, and ways to minimize impact where possible. It demonstrates maturity.

 

Mistake 4: Proposing Unrealistic Solutions

 

"Just renegotiate all supplier contracts for 30% savings" sounds great until you think about execution.

 

Make sure your ideas are actually feasible. Consider constraints like long-term contracts, switching costs, quality requirements, and market realities.

 

Mistake 5: Focusing Only on Short Term

 

Cutting R&D might boost profits this year. But it could kill the company in five years when competitors' products are better.

 

Balance quick wins with long-term competitiveness. Your recommendation should work both immediately and over time.

 

Mistake 6: Poor MECE Framework

 

If your cost categories overlap or leave gaps, the interviewer will notice immediately. Take an extra 30 seconds to make sure your framework is truly MECE. It's worth it.

 

Mistake 7: Vague Recommendations

 

"The company should reduce some of its variable costs" isn't a recommendation. It's restating the problem.

 

Be specific. Name the cost category. Quantify the savings. Describe the approach. That's what interviewers want to see.

 

Advanced Cost Reduction Case Interview Concepts

 

Once you've mastered the basics of cost reduction case interviews, these advanced concepts can set you apart from other candidates.

 

1. Benchmarking

 

Comparing your client's costs to others reveals what's truly excessive.

 

External benchmarking compares to competitors or industry averages. If your client's sales and marketing costs are 15% of revenue while competitors average 10%, there's likely opportunity.

 

Internal benchmarking compares different units within the same company. If factory A produces the same product as factory B but costs 20% more to operate, you should understand why.

 

2. Zero-Based Budgeting

 

Traditional budgeting starts with last year's budget and makes adjustments. Zero-based budgeting starts from zero and justifies every expense.

 

This approach forces organizations to question whether activities are still necessary and whether they're being done efficiently. It can uncover costs that have persisted for years without anyone asking if they still make sense.

 

3. Lean and Six Sigma Principles

 

These manufacturing methodologies have applications in cost reduction.

 

Lean focuses on eliminating waste. The eight types of waste are defects, overproduction, waiting, non-utilized talent, transportation, inventory, motion, and excess processing.

 

Six Sigma focuses on reducing variation and defects. Fewer defects mean less rework, scrap, and warranty costs.

 

You don't need to be an expert in these, but knowing the basic concepts can impress in the right case.

 

4. Total Cost of Ownership

 

TCO analysis looks beyond purchase price to understand true costs over time.

 

A cheaper supplier might seem attractive until you factor in quality issues, delivery delays, or technical support costs. TCO captures all of this.

 

This is especially relevant for procurement cases or decisions about outsourcing versus in-house capabilities.

 

5. Economies of Scale

 

Understanding how costs behave at different volumes is crucial.

 

Fixed costs spread over more units as volume increases, reducing per-unit cost. Variable costs might also decrease with volume if you can negotiate better rates with suppliers.

 

But there are also diseconomies of scale. Growing too fast can create coordination costs, quality issues, or inefficiencies that actually increase costs.

 

6. Industry-Specific Cost Drivers

 

Different industries have different cost structures. Showing you understand this demonstrates business acumen.

 

  • Manufacturing: Raw materials, labor, energy, equipment maintenance, and logistics are the big costs. Efficiency improvements and supply chain optimization often deliver the most savings.

 

  • Retail: Rent, inventory carrying costs, and labor dominate. Store closures, inventory optimization, and labor scheduling can make big impacts.

 

  • Software/Tech: People costs, cloud infrastructure, and customer acquisition dominate. Automation, offshore development, and improving retention can help.

 

  • Healthcare: Labor (especially skilled professionals), medical supplies, and administrative overhead are huge. Process improvements and better resource allocation matter most.

 

  • Airlines: Fuel, aircraft leasing, labor, and maintenance drive costs. Fleet optimization, fuel hedging, and route planning are key levers.

 

You don't need to memorize every industry's cost structure. But if you're interviewing with a firm that specializes in a particular industry, become familiar with basic costs of that industry.

 

How to Prepare for Your Cost Reduction Case

 

Preparation makes all the difference in crushing your cost reduction case interview. Here are the different things you should prepare for.

 

Master the Frameworks

 

Don't just memorize frameworks. Understand when to use each one and practice applying them to different scenarios. Draw them out repeatedly until you can sketch a clean framework in 30 seconds.

 

Read Business News

 

Stay current on cost reduction trends. Companies announcing restructuring, supply chain changes, or efficiency programs make great case study material. The Wall Street Journal, Financial Times, and industry publications are good sources.

 

Learn Basic Business Metrics

 

Know how to calculate and interpret gross margin, operating margin, EBITDA, inventory turnover, and other key metrics. These come up constantly in cost cases.

 

Practice Mental Math

 

You'll need to do calculations on the fly. Get comfortable with percentages, averages, and back-

of-the-envelope estimates. The faster you can do basic math, the more time you have for insight and analysis.

 

Do Mock Cases

 

Nothing replaces live practice. Find case partners and work through realistic scenarios. Ask them to challenge your assumptions and push back on recommendations.

 

Study Real Cost Reduction Projects

 

Read case studies about actual cost reduction initiatives. Understand what worked, what didn't, and why. Business school case studies, consulting firm case examples, and company earnings calls often discuss this.

 

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