An overview of cost minimisation as financial strategy in business

1. Cost Minimisation

2. Cost Minimisation Strategies Cost minimisation aims to achieve the most cost-effective way of delivering goods and services to the required level of quality

3. Benefits of effective cost minimisation

4. Two approaches to cost minimisation

8. Profit Centres A profit centre is a separately-identifiable part of a business for which it is possible to identify revenues and costs (i.e. calculate profit)

10. Benefits and drawbacks of profit centres Advantages Disadvantages Useful insights into where profit is earned within a complex business Can be time-consuming to both set-up and monitor Supports budgetary control at a detailed level, including setting profit objectives Difficulties in allocating costs (particularly) and revenues (occasionally) Can improve motivation of those responsible for the profit centre May lead to conflict and competition rather than cooperation within the business Comparisons can be made between similar profit centres (e.g. shops in a chain) Potentially de-motivating if profit centre targets are too tough, or if unfair cost allocations are made Improves decision-making at a local level (likely to be closer to customer needs) Profit centres may pursue their own objectives rather than those of the broader business Finance can be allocated more efficiently – where it makes the best return

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