2. Concept of cost control
Cost control, also known as cost management or
cost containment, is a broad set of cost
accounting methods and management
techniques with the common goal of improving
business cost-efficiency by reducing costs, or at
least restricting their rate of growth.
Businesses use cost control methods to monitor,
evaluate, and ultimately enhance the efficiency
of specific areas, such as departments, divisions,
or product lines, within their operations.
3.
4. Why companies cut cost.
According to a recent McKinsey
Quarterly survey, 79 percent of all
companies have cut costs in response to
the global economic crisis—but only 53
percent of executives think that doing so
has helped their companies weather it.Yet
organizations continue to cut. Cost
reductions often go wrong, we believe,
and our experience suggests that they can
be done in a better way.
5. The business environment companies find
themselves tends to be the major reason to why
most organizations review cost operations and
applications.
The environment can be marred with economic
tension that will make the organizations to
adjust to the level it can efficiently and
effectively operate.
6. Business managers monitor, evaluate, and trim
expenditures.These efforts might be part of a
formal, company-wide program or might be
informal in nature and limited to a single
individual or department.
7. In a small business the focus is often on selling
and servicing the customer.This leaves the
task of purchasing slightly sidetracked. Even
seemingly insignificant expenditures—for
items like office supplies, telephone bills, or
overnight delivery services—can add up for
small businesses. On the plus side, these
minor expenditures are often sources of cost
savings.
8. COST CONTROL APPLICATIONS
A complex business requires frequent information
about operations in order to plan for the future, to
control present activities, and to evaluate the past
performance of managers, employees, and related
business segments.To be successful, management
guides the activities of its people in the operations of
the business according to pre-established goals and
objectives. Management's guidance takes two forms
of control: (1) the management and supervision of
behavior, and (2) the evaluation of performance.
9. Cost control is a continuous process that begins with the
proposed annual budget.The budget helps: (1) to organize
and coordinate production, and the selling, distribution,
service, and administrative functions; and (2) to take
maximum advantage of available opportunities. As the
fiscal year progresses, management compares actual
results with those projected in the budget and incorporates
into the new plan the lessons learned from its evaluation of
current operations.
10. Ways of controlling cost
Renegotiate all contracts annually. For
whatever reason, American businesses presume
that multiple year contracts will result in lower
costs. Maybe sometimes, but not always. A
smart company policy is not to have the life of a
contract exceed one year. This forces annual
bidding or at least renewal discussions with the
current suppliers. Almost always these
discussions will result in lower cost of goods. A
multi-year contract will usually favor the
vendor. Of course this is a lot of work. But it sure
pays out.
11. 2) Ask your customers. Annual planning sessions with
customers have many benefits. Naturally these discussions
primarily should focus on ways to grow the business. But
too often these discussions fail to address costs. By
discussing costs holistically up and down the combined
supply chains, customers often can recommend ways to
reduce costs. For example, how to take wasted steps out of
the process, or how to plan jointly to smooth production, or
maybe even how to change the product mix to get rid of
costly items and replace them with some that are more
profitable. Talking to the customer is never a bad
thing. But talking about how to jointly improve business
deepens the relationship, shows them you care, and helps
reduce costs for both parties.
12. 3) Match terms with turns. Each item in your
inventory moves at a different rate. And yet
suppliers normally apply a one-size-fits-all
approach to payment terms. You can reduce
your working capital to zero if payment terms
were matched with the inventory turns of each
item. By negotiating this into your contracts it
incents the suppliers only to sell the best moving
items and to work with you to improve inventory
productivity. The results will free up cash that
can be deployed elsewhere in the business and
improve profits.
