Cost management Practices in Fruity Bread

1. Dated : 21st April 2013
Report on Project Cost
Management practices in
Arsalan Foods.
Submitted To :FahadParacha
Szabist
Submitted By
Syed Mohammad Ali Abbas Rizvi
SyedaMasoomaNaqvi
Mohammad LubaibChandio
Syed ArsalanAfsar

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Table of Contents
INTRODUCTION:......................................................................................3
Company`s Vision....................................................................................3
Company`s Mission.................................................................................4
Words with Rao Rizwan (CEO) of Arsalan Foods.....................................4
Why is Cost Management so important in projects? ..............................4
Existing Project Cost Management Process in Arsalan Foods .................5
Analogous Estimation .............................................................................6
Bids from Vendors ..................................................................................6
Expert Judgment.....................................................................................7
Recommendation: ..................................................................................7

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INTRODUCTION:
Arsalan Foods has developed a history of entrepreneurial excellence ever since its
inception in 1987. Their management techniques, quality standards, and passion for
growth have propelled them to the top of the Pakistani food industry. Their product
diversification and market development strategies have enabled them to grow tenfold
within a decade. Today their products portfolio includes bread, fruit buns, rusks and many
other bread items.
They believe their employees constitute their main differentiating factor and that effective
application of the latest management and leadership techniques are essential for creating
value in the corporate environment. Arsalan Foods enjoys the privilege of being an equal
opportunity employer and they envision their organization as an integrated whole with all
the parts acting in conjunction and harmony with each other. Market development and
penetration are their key priorities at the moment and theybelievetheir product portfolio
demands a global audience. In this regard they have established an import-Export
department to explore probable markets and develop positioning strategies. Their installed
production capacity and expected additional increment mean they are in an ideal position
to develop foreign markets while maintaining top quality services to local consumers.
“Together we hope to emancipate a new era of food revolution adhering to our core
competencies of excellent customer service and differentiated products. Constant
innovation and redefining our core processes is a daily mantra and we aim at, nay we
foretell of greater things to come.”
ByRaoRizwan
Chief Executive Officer
Company`s Vision
Our vision is to be the world’s premier food company, offering nutritious, superior tasting
breads to people in Pakistan. Being the premier bread company does not mean being the
biggest but it does mean being the best in terms of consumer value, customer service,
employee talent, and consistent and predictable growth.

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*copy of this report is also submitted to Arsalan Foods.
Company`s Mission
To make, distribute & sell the finest quality bread products with a continued commitment
to incorporating wholesome, natural ingredients and promoting best business practices.
Words with RaoRizwan - CEO of Arsalan Foods.
Due to the rapidly changing nature of our market and cut throat competition it is essential
for us to keep introducing new products in order to keep pace. This also helps us in
maintaining market share as well as allows the brand to reach a diversified audience thus
ensuring constant growth of Professional Family.
Our Projects are not completely managed as per Standards and Practices describe by
PMBOK but to some extent we are using similar practices as the top control approachfor
costing.
For every new idea, process, or product a prefeasibility analysis is made by the company’s
higher management.Financial viability can be judged on the following parameters:
Total estimated cost of the project (a ball park value)
Financing of the project in terms of its capital structure, debt equity ratio and
promoter's share of total cost
Existing investment by the promoter in any other business
Projected cash flow and profitability
Why is Cost Management important in projects?
A Cost Management process helps you control expenses within an organization. By
purchasing the Project Cost Management process advertised here, you can ensure that all
expenses are approved before they are paid. Using this project Cost Management process,
you can ensure that your project is delivered within budget.
For a company's management to be effective overall, cost management must be an integral
feature. It is easiest to understand this concept if it is explained in the context of a single
project. For instance, before a project is started, the anticipated costs should be identified
and measured. These expenses should then be approved before any purchasing occurs.
During the process of completing a project, all incurred costs should be noted and kept in a
record of some kind, to help ensure that the costs are controlled and kept in line with initial
expectations, to the extent that this is possible.

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Taking this approach to cost management will help a company determine whether they
accurately estimated expenses at first, and will help them more closely predict expenses in
the future. Any overspending can also be monitored in this way and eithereliminates in
future projects or specifically approved if the expense was necessary. Cost management
cannot be used in isolation; projects must be organized and tailored with this strategy in
mind.
Starting a project with cost management in mind will help to avoid certain pitfalls that may
be present otherwise. If the objectives of the project are not clearly defined at first, or are
changed during the course of the project, cost over-runs will be more likely to occur. If
costs are not fully researched before the project, they may be underestimated, thereby
inflating the expectation of the project's success unrealistically. Construction projects are
subject to their own particular challenges; these can include constraints in the form of laws
and regulations that must be planned around.
If the project is completely and clearly defined, this will facilitate effective management of
the costs it will incur. Effective cost management strategies will help a team deliver a
finished project within the allocated budget, while also making it as valuable as possible to
the company. There is always the possibility of unexpected costs, but preparation in the
form of cost management will likely make them much easier to deal with when they occur.
Existing Project Cost Management Process in Arsalan Foods
There are two conventional costing approaches used in Arsalan Foods. The first, and more
common, is process costing. Used in most mass-production settings, a process cost system
analyzes the net cost of a manufacturing process, say filling bottles with soda, over a
specified period of time. The unit cost for filling bottles is simply the net costs incurred
while filling all the bottles during the period divided by the number of bottles filled. Since
most manufacturing processes involve more than one step, a similar calculation is made for
each step to arrive at a unit cost average for the entire production system.
In contrast, the second major costing method, job-order costing, is concerned with
tracking all the costs on an individual product basis. This is useful in settings where each
unit of production is customized or where there are very few units produced, such as in
building pianos, ships, or airplanes. Under job order costing, the exact costs incurred in the
production of a particular unit are recorded and are not necessarily averaged with those of
any other unit, since every unit may be different. Job-order costing is also widely used
outside manufacturing. A single manufacturer may use both process and job-order costing

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for different parts of its operations.
Cost estimation depends upon the nature of project being undertaken. Currently the
product cost or project cost is estimated on the following parameter mostly by the
Marketing Director accomplished with financial and production personnel.
Moreover some excel sheet has been generated internally to estimate the cost of project
even though you have very efficient estimates but you have to include a contingency
margin to overcome the human error or market inflation.
The following list includes common tools and techniques used in project cost estimation:
Analogous Estimation
As stated earlier the need of project is initiated by company`s higher management, so most
of the time estimation is done by or under the supervision of higher management using the
previous completed projects.
Bids from Vendors
Most of the time project is initiated by CEO of the company and also the managed by him,
so he often has estimates from the vendors by floating request for proposals and request
for quotation. Some RFPs and RFQsare attached with this report.
Project Cost
Management
Collect
Estimates
Develop
Budget
Cost Control

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*copy of this report is also submitted to Arsalan Foods.
Expert Judgment
Use of knowledge gained from past project management experience.Expert judgment, in
conjunction with objective estimation techniques, provides valuable information about the
organizational environment and information from prior comparable projects.
Recommendation:
As per above context and after analyzing the existing cost management practices , it is
recommended that it better not rely on Vendors bids or ball park values for the
experienced resources , use the project management practices to estimate and control the
cost of project. It is only possible when projects are treated as a project described in
PMBOK.
Project Cost Management Process helps you to monitor and report all expenses within
a project.
Costs (or "expenses") are recorded by team members, using expense forms. These forms
are reviewed and approved by the Project Manager, prior to the expense items being
purchased.
The project cost management process steps you through this process, to ensure that all of
the costs within your project are accurately recorded and tracked.
This project cost management process will help you to:
Identify each of the costs within your project
Ensure that expenses are approved before purchasing
Keep a central record of all costs incurred
Control the overall cost of your project
Determine whether your expenses were adequately budgeted
Monitor and control instances of over-spending
Gain special approvals for extra-ordinary expenses
Schedule expense payments and invoice approvals
Keep your project and financial plans up-to-date
To deliver your project under budget, it is essential that you implement an effective and
efficient project cost management process. This process will help you identify, monitor and
control costs, at each phase in the project.
If you want to control the way that expenses are incurred, then you need to implement
a Cost Management process. It will help you to control project expenses, ensuring that only

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*copy of this report is also submitted to Arsalan Foods.
expenses which have been approved, may take place. Using this Cost Management process,
you can also keep your project plan up-to-date with the latest expense information
available