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Strategic cost control
Strategic cost control involves identifying three types of costs: productive costs that provide value to customers, support costs that are necessary but don't directly benefit customers, and waste that provides no value. Organizations can control costs by avoiding waste through various means like eliminating unnecessary processing steps, stopping non-value adding movement of employees and goods, and measuring all costs and inputs. Effective cost control involves setting targets, measuring actual performance against targets, identifying variances, and taking corrective actions. It is a preventative function aimed at optimizing costs before they are incurred. Strategic thinking about cost control requires examining cost allocation mechanisms, manager awareness of cost implications, and distinguishing between restraint-based and freedom-based forms of control.
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Strategic cost control
- 1. Strategic Cost Control Vinod Bidwaik http://vinodtbidwaik.blogspot.com
- 2. Types of Costs Productive Costs: Provide value to customer Support Cost: Necessary, but don't benefit Customer Waste: No value to customer
- 3. Avoid Waste Byrectifying mistakes By not producing items that nobody wants By eliminating some of the processing steps that may not be required. By stopping movement of employee without purpose By unwanted transport of goods or movement without real purpose By expediting the upstream activity, so that people or assets may not wait idle By measuring all the costs and inputs of a particular process.
- 4. Form of Waste Waste of material Waste of machinery Waste of money Waste of customer Waste of supplies Waste of manpower Waste of space Waste of ideas
- 5. Organizational control Planning& control Effective controls Controls through teamwork Visible measurement Measurement of failure Risk Management Value added activity Elimination of non value added activity Change control Standards Good Housekeeping
- 6. Effective Controls By measurement,appraisal and actions Process work right Process work on time Process work economically Process work fast Process work when customer change their mind
- 7. Management control Financialcontrol Organizational control Production control Quality control Stock control Debtors Control
- 8. Profit planning, control& improvement Budget & budgetary control Marginal costing Cost volume profit analysis and break even charts Differential & comparative cost analysis
- 9. Strategic thinking aboutcost control Does the cost allocation mechanism work? Can functional heads distinguish those costs assigned to their activities over which they may have some influence? Are Managers fully aware of the cost implications of their own decisions?
- 10. Two forms Restraints:Weak & over detailed and stifle the initiative of managers Freedoms: Often fail through inadequate information on full costs
- 11. Cost control &cost reduction Cost Control Cost Reduction Represents efforts made towards Represents achievement in achieving a target or a goal reduction of cost To set up a target, ascertain Not concerned with the actual performance & compare it maintenance of performance with Targets, check variance & according to the standards take measures Assumes existence concealed Assumes existence of standards potential savings. or norms which are not Corrective function challenged Continuous process of analysis Is a preventive function, costs are optimized before they are The main stress is upon in Why incurred of a thing. Lacks dynamic approach
- 12. Why controls? Betterplanning Improved motivation Economic use of time Improved competitive edge Increased commitment Better decision making Improved efficiency More profit
- 13. Planning overhead costcontrol Establish company objective and targets Develop detailed programmes Organize resources to meet the objectives Establish performance standards Develop a system of budgets Report on performance
- 14. Basic elements Productivity: More production in lesser manpower Or More manpower to produce even more
- 15. Doing more withless Deliver more of Profits, Productivity, Quality, Sales With less of Money, Staff, Time, Machinery
- 16. Strategy Is ameans to achieve goals Links all parts of an organization Covers all major aspects of an organization Is a long term plan Ensures that all parts of the plan are compatible Identifies basic issues such as What is our business? What should it be? What are our products/services, functions, markets? What should we do to achieve our objectives?
- 17. Strategy Is aresult of analyzing the strength & weaknesses of the organization Determining opportunities & threats Is an organization’s planned response to its environment over time.
- 18. Elements of Strategy Goals/objectives to be achieved Policies for action Programme to achieve goals within the set limits.
- 19. Strategic Costs Canyou define your strategic costs? What is your attitude towards costs? What is your approach towards cost cutting? Do you practice the new art of cost cutting? What can you do yourself to cut costs? Are your profits cost effective?
- 20. Think big…………….. Butdon’t throw away the small small parts, nuts and bolts..
- 21. Attitude towards cost Means knowing when, how and which costs to cut One that value wise spending, prudent cutting and organizational flexibility
- 22. Hidden costs Thinkbottle necks Cycle times Downtime rates Machine set up times and changeovers Reuse of scrap material R&D Procure time
- 23. Methods & Procedures KISS Keep It Short & Simple
- 24. Simple production control SimpleCommunications Simple Measurement
- 25. Agree with suppliersto take five days longer credit Cut debtors days by five through better collection Reduce stock by 5% by using Material Management techniques. (JIT, FIFO etc) Get one new customer per day/week
- 26. Procedures Customer needs Organization needs Employee needs
- 27. Do we needprocedures and processes? If yes when?
- 28. 4W1H Why: Is itnecessary? Should it be done at all? Why? Where: Should it be done? Here or somewhere? Why? When: Should it be done? Now, sooner or later? Who: Should do it? Same person, other persons? How: Should it be done? As at present or another way? Why?
- 29. Efficiency & Effectiveness Efficiency: is to know everything Effectiveness: is to deliver on time or before time.
- 30. Concept Description Characteristics Measurement Efficiency Are we doing things Easy to monitor and Activity level, right? measure against Costs standards but not always linked or identifiable with ultimate goals Effectiveness Are we doing the Indirect, subjective Revenue right things? appraisal, Market Share Frequently impacts on Competitive sales, profits or other perception measures of success
- 31. Employers don’t paywages- they only handle the money. Product pay wages…. Henry Ford
- 32. Don’t reduce staff Ask more from your key people People are better than you think
- 33.
- 34. Vinod Bidwaik http://vinodtbidwaik.blogspot.com Vinod Bidwaikis the seasoned HR professional working with DSM India Pvt. Ltd. as the Head-HR for India operations. He has wide experience in large Indian and Multi-National companies like M & M, Semperit Group and Sakaal Media Group on senior level positions. He has rich experience in HR and IR. He has an expertise working on greenfield projects and establishing HR department. He implemented various HR practices; OD interventions in his organizations. During his tenure with Semperit, the company was awarded for Best Innovative HR Practices during 2002 by NIPM. He holds Master degree in Personnel Management, Diploma in Production Management. He is the regular writer for various management journals like BMA Review, Human Factor and other management Journals. He is on editorial advisory board of CJMR, Journal of Management Research of CMRD, at Pune. He writes regular columns in various newspapers on management and development. He is invited for Guest lectures on specialized subjects by various management and engineering institutions. He is a life member of Bombay Management Association and holds various honorary positions in different associations. Disclaimer: Views expressed here are his own views and do not represent his organization's (current & past) views.