Cost management is a complex process that includes several important aspects:
maximum efficiency in using available resources;
strategic planning: it is important to know what resources will be needed in the future and in what quantities;
control system: it is necessary to track what and how many resources are spent on.
Lack of effective management or its complete absence leads to chaos. Money and resources are spent indiscriminately, which leads to hidden costs and loss of potential benefits for the company.
Without cost accounting, the france phone data company does not have an idea of cost. Without knowing the real cost of the final product, it is impossible to correctly determine the price for it. This leads to a situation where the product is either sold at an undervalued price, which entails losses for the company, or the price is too high, and as a result, demand for the product falls.
This, in turn, leads to erroneous management decisions regarding the product range. The production of goods is guided by the personal preferences of managers, which do not always correspond to the needs of the market.
As a result, the company continues to produce products that have long since lost their relevance.
Cost Management Tasks
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It is necessary to maintain control over expenses in order to approach the issue of their reduction wisely. It is possible to increase profits not only by increasing sales volumes, but also by optimizing costs.
Uncontrolled sales growth can lead to additional costs for marketing, increased labor force, equipment purchases, etc.
Cost management aims to increase revenues by reducing expenses without the need for large financial investments typical of production expansion. The key is to understand the causes of expenses and develop measures to optimize them.
To ensure production, it is necessary to have sufficient raw materials. One company may purchase them in small quantities, say for a week, while another would prefer to purchase the same raw materials for two months.
In the first case, the cost per unit of raw material will be much higher than in the second, due to the fact that suppliers provide a discount for large orders. The company needs to analyze both options and choose the most optimal one.
For example, if purchasing for two months will not lead to overflowing of the warehouse and financial difficulties, then it is better to have an additional supply of raw materials.
The mechanism for cost control within an organization provides an understanding of the following aspects:
the required volume of products and assortment for production;
full cost price of each product;
optimal price for the product;
the size of the discount depends on the volume of the purchase;
availability of resources at the current moment;
need for resources in the near future;
the level of profitability of the organization.
Case: VT-metall
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