Effect of cost control and cost reduction techniques in. Does cost control and cost reduction scheme affect the quality of the product of the company. Organizing a costreduction program 7 with this information in an excel spreadsheet, it is a simple matter to sort the data its already been sorted in table 1. The main difference between cost control and cost reduction depends on whether costs are maintained at a particular level or lowered with the intention of achieving higher profits. Because companies have a greater control over internal costs than they do over the. Can we differentiate between cost reduction cost saving. For them, the need to control costs and assisting with a speedy return to production was a big factor in choosing their controls systems. Pdf cost reduction is usually confronted with conflicts and resistance. Cost control is a process that uses competitive analyses to control an organisations total cost. It is therefore logical that no single tool or method is guaranteed to solve every companys issues. The major projects report 2009 details the cost, time.
Cost planning, cost plan accuracy management, cost control, cost reduction, budget 1. Features of cost reduction cost reduction is not concerned with setting targets and standards. Cost control focuses on decreasing the total cost of production while cost reduction focuses on decreasing per unit cost of a product. But though it is largely true that if you look after the pounds the pennies will take care of. Controlling the costs, already predetermined on the basis of assumption of reasonable level of efficiency taking the past, present and future into account is the main focus of cost control. Difference between cost control and cost reduction cost control cost reduction represents efforts made represents towards achieving a achievement in target. The adoption of cost control and cost reduction strategies in business organization has become essential in the economy of most business given he level of pritization in organization today, especially the manufacturing sector. The future directions of cost studies of buildings some will attempt to argue that a few of these techniques merely limit expenditure and apply a range of cost control practices, i. Cost control and cost reduction ibrahim rihan cost control definition. When companies cut costs, they often make acrosstheboard cuts that are unconnected to. Example setter of cost reduction program should be top management employee.
One of the aims of cost control is to construct at the cheapest possible costs consistent with the project objectives. This article contains mainly some of the techniques of cost control and cost reduction in a very simple and in laymans terminology. This environment is made up of agreed operating methods for which standards have been developed. If the price of the product is stable and reasonable, it can maintain higher. Cost estimation is not only getting the estimates right but managing changes to the quality and. Cost control and cost reduction free download as powerpoint presentation. It is a practice which works to align the actual cost in agreement with the established norms. Cost control is achieving the cost target as its objective while cost reduction is directed to explore the possibilities of improving the targets or company profitability. Cost reduction in managerial economics mba knowledge base. Further, a cost reduction is entirely within the control of a company, whereas a.
Cost effectiveness are expenses that are suppose to needed to our project even thoiugh its a breakeven earnings. In finer terms, cost reduction is a systematic and corrective technique used by most of the firms to cut the inessential expenses of the goods manufactured and increase the overall profits in this process, the essential features and quality of the product are kept intact and is limited to the constant savings in the cost of production, administration, selling and distribution. The following are illustrative examples of cost control. In fact, cost control also known as cost management or cost containment. Cost control by management means a search for better and more economical ways of completing each operation. Cost control is the achievement of pre determined targets of costs. Pdf critical success factors of strategic cost reduction. Difference between cost control and cost reduction compare. Besides, cost control is a preventive function whereas cost reduction is a correlative function. Cost control and cost reduction definition advantages and disadvantages variance analysis ratio analysis cost control techniques.
Cost control is a process where the construction cost of the project is managed through the best methods and techniques so that the contractor does not suffer losses when carrying out the activities of the project. Below is an email we received from one of our clients that attended the cost reduction in purchasing training course. One way that companies can regain control over their costs is not only to assess these costs, but also systematically classify and identify product costs. It describes a variety of cost reduction tools and the issues associated with using. Organizing a costreduction program scrivener publishing. Sys 4096 bytes microsoft corporation, acpi operation.
Cost reduction strategies reduce operations cost reducing. Conversely, the process of cost reduction has no visible end as it is a continuous process that targets for eliminating wasteful expenses. Scribd is the worlds largest social reading and publishing site. It is the reducing of cost in order to increase the profits and the strategies to reduce the cost may vary from product and services of the company cost control. Cost control focuses on decreasing the total cost while cost reduction focuses on decreasing per unit cost of a product. Value, as defined, is the ratio of function to cost however, value engineering can also be associated with cost.
The upcoming discussion will update you about the difference between cost control and cost reduction. The first thing you need to know is that you cant grow a company by cost reduction alone. In the case of cost reduction, the primary objective is to cut back on unnecessary expenses by changing your scope and reducing the frequency of maintenance services without having a negative impact on the end result. Cost control and cost reduction cost accounting cost. Cost control and cost reduction difference ii cost.
Lifecycle cost refers to the specific costs of the product operation supplies. Using a systematic approach to perform cost reduction not only yields cost improvement but provides decisionmakers with the tradeoffs involved in achieving these reductions. Each market is different and each companys needs are different. Cost control is process of utilizing the available resource economically. Cost reduction strategy within pro pdf xchange an effective control environment. Cost reduction is a continuous process of critically examining various elements of cost and each. While many of the strategies of cost reduction and cost cutting are the same, every technique of cost cutting does not apply to cost reduction. Difference between cost control and cost reduction.
Would you rather be in control or manage your costs. Execute it cost reduction as a structured program using leading program management practices. Cost reduction can result in saving the product cost, manufacturing cost s, and life cycle cost. Allocation of responsibility of the various cost reduction levels of management is an important requirement for control of cost reduction of the operation and spheres under his control. Cost control is simply the prevention of waste within the existing environment. The following are the major differences between cost control and cost reduction. Unlike cost reduction which is a permanent process. However, 100% quality maintenance is assured in case of cost reduction. Cost control is a preventive function as it ascertains the cost before its occurrence. Cost control and reduction encyclopedia business terms. The process of identifying and eliminating unnecessary costs to improve the profitability of a business is know as cost reduction. What is the difference between cost control and cost reduction.
Cost control does not guarantee quality maintenance. In practice they do much more through refocusing the design and construction teams by adding value to the project. Cost reduction can be understood as the perennial decrease in the unit cost of goods produced and services provided by the company, without compromising with its quality and suitability for the use intended, with the help of new and improved methods. Most people think that controlling costs and reducing costs are one and the same when, in fact, they can generate two totally different outcomes. Cost control is a process in which we focus on controlling the total cost through competitive analysis. These cost reduction strategies from kepnertregoe provide additional benefits that ripple throughout the business by eliminating waste, accelerating processes, and utilizing resources effectively. Cost reduction is the process used by companies to reduce their costs and increase their profits. Control of objectives and of the schedule for project realization. Abstract this research was based on the consideration of cost reduction and control scheme available or existing in manufacturing companies with special references to port harcourt flour mil ltd. Following are the main differences between cost control and cost reduction. The reduction should not be at the cost of essential characteristics, such as quality of the products or services rendered. By contrast, there are many outcomes for opex reduction, that deliver ongoing results to reduce it budgets year after year. Difference between cost control and cost reduction with. There is a difference between cost control vs cost reduction.
Jan 02, 20 cost reduction in managerial economics the institute of cost and works accounts of london has defined cost reduction as the achievement of real and permanent reductions in the unit costs of goods manufactured or services rendered without impairing their suitability for the use intended. Difference between cost control and cost reduction business. Mar 17, 2017 summary cost control vs cost reduction. Cost control techniques used on building construction. Cost reduction, on the other hand, is a process that focuses on bringing down the costs of an organisation by reducing them from their current value by a set percentage usually ranging from 10 to 30 percent. If the cost control emphasis is on past and present, while the cost reduction emphasis is on the present and future. Cost management and cost control are two terms that often get mixed up. Value engineering is a systematic method to improve the value of goods or products and services by using an examination of function. Cost reduction is to reduce purchase of items that will not affect our budget cost that could only suffice to our project. It is a strategised, fully planned and more elaborate method of cos. Cost control versus cost reduction cost accounting.
At this juncture, it would be desirable to know the difference between cost control and cost reduction, so read out the article. Besides planning and controlling measures the management. What is the difference between cost control and cost management. Cost control and cost reduction are twin objectives of management but their concepts, procedures and approaches are widely different.
In terms of sustainability, the three types of costsshould take into impact account the on resource use and waste management. For example, a reduction in price of any commodity decreases. Ca final costing cost reduction vs control, pareto analysis in english duration. Higher profit will provide more revenue to the government by way of taxation.
Elimination of excess or unnecessary costs in production and operation process by applying different methods and techniques is known as cost reduction. Success of any cost reduction program may lie in only continuous improvement of efforts. What is the difference between value engineering and cost. Unit manufacturing cost, cycle cost, life quality loss cost. Cost reduction focuses on minimization of cost through new production process, improved plant layout, scientific material handling etc. Cost control and cost reduction lets learn finance. A cost reduction program is a complex of shortterm and longterm cost reduction initiatives. However, capex reduction is just one way to save, and it is limited to oneoff budget cuts. Examples include assessing manual or high cost processes to determine if they could be automated. Cost reduction strategies for smes synergee limited.
Operating room costs control is an important part in the. It is a useful tool which describes the way of reducing cost according to the planning, budgeting, financing and funding. This is an excellent example that with little work but knowing what he is talking about a professional can get the supplier to offer good reductions. Any investment done by the management always thrives among the market to optimize its productivity and approaches to achieve profits. The programme for cost reduction should be clearly defined and responsibilities delegated. Differences between cost control and cost reduction. Difference between cost control and cost reduction mba. Start with the biggest costs generally, it is wise to begin by looking at the biggest costs irst. Cost control and cost reduction definition of cost control. Pdf cost control and cost reduction definition advantages and. What are the good examples of cost reduction and cost. Besides, cost control emphasis on ensuring that the cost does not exceed the standard budget of the organization. Mar 15, 2016 cost reduction can result in saving the product cost, manufacturing cost s, and life cycle cost. Cost reduction program should be real and permanent.
Managerial economics cost control and cost reduction 2. Cost reduction and control best practices provides financial manages with nononsense, balanced, and practical strategies that are being targeted and used nationwide for controlling costs by thousands of companies in areas such as human resources, compensation, benefits, purchasing, outsourcing, use of consultants, taxes, and exports. Focus cost control focuses on the minimization of wastage than the reduction of cost. As a result of reduction in cost, export price may be lowered which may increase total exports. So, cost reduction must be a genuine one and should aim at the elimination of wasteful operations, increasing efficiency and effecting genuine cost saving. Cost control aims at achieving the predetermined costs, whereas cost reduction aims at reduction of costs by finding new ways or methods to have continuous economy on costs. Cima, london has defined cost control as the regulation by executive action of the cost of operating an undertaking particularly where action is guided by cost accounting cost control is a process which focuses on controlling the total cost through competitive analysis. While the emphasis of cost control is on past and present while the emphasis of cost reduction is more on future rather than on past or present.
Cost reduction program is a continuous activity that cannot be treated as one time or short term activity. Cost reduction strategies can reduce operations costs while increasing productivity, allowing for strategic reallocation of resources. An effective governance process is key to establishing accountability and decision rights for ensuring successful execution of the it cost reduction programs and actually achieving the forecasted savings. Sustainable cost reduction is the targeted use of lean methods to remove waste from the biggest cost drivers. A practical guide to reducing overhead by 10%, 20%, or wince 30%.
Cost reduction is carried out as an expansion strategy or growth strategy while cost cutting is red signal symbolizing instability in the company. Cost reduction as an element of business strategy dca partners. Cost reduction may defined as an attempt to bring cost down. Yet, we now have both the compelling drivers and the practical means to make strategic cost reduction. Cost reduction is the final result in the cost control process. Cost control and reduction refers to the efforts business managers make to monitor, evaluate, and trim expenditures. While cost saving meaning the reduce of unncecessary expenses that are not really needed to our project cost. There are two different concepts between cost control and cost reduction. These efforts might be part of a formal, companywide program or might be. Five steps to strategic cost reduction pwc 5 rethinking strategy and cost delivering strategic change and putting in place the operational capabilities needed to deliver it have always been difficult.
The process of cost control will be completed when the specified target is achieved. Oct, 2015 cost control does not guarantee quality maintenance, however 100% quality maintenance is assured in case of cost reduction. Cost becomes more important when competition increases and price becomes a. There are several tools and techniques such as just in time system, activity based management, target costing, total quality management etc. Reducing operational expense opex with virtualization. Conceptually, accounting is the discipline that provides information on which external and internal users of the information may base decision that result in the allocation of economic resource in society.
The key difference between cost control and cost reduction is that cost control is the process of maintaining costs at estimated levels while cost reduction aims to lower unit cost of production without compromising on the quality. What is the difference between cost control and cost. Judge what costs to eliminate, reduce and increase. In other words, it means to regulate control the operating costs in a business firm. Thus, cost reduction must be a genuine one and should aim at the elimination of wasteful elements in methods of doing things. Apr 19, 2017 while cost control, regulates the action to keep the cost elements within the set limits, cost reduction refers to the actual permanent reduction in the unit cost. The activity of maintaining cost as per the established norms is known as cost control. May, 2015 cost accounting includes not merely the maintenance of cost records for cost ascertainment but also for cost analysis, cost comparison, cost control and cost reduction. Cost control template is a tool which is actually a main factor of every business for the reduction of spendable cost which is preferable for managing all expenses and expenditures of project according to the budget.
Cost control is different for different process of a product, so for one process there may cost control and for other there may no cost control while cost reduction is uniform throughout the company. It is vital in todays economy for accountants to be familiar with both cost reduction and cost control two similar but significantly different ways to monitor and modify organisational costs. May 25, 2018 business is either subjected to profit or loss. Structured cost reduction structured cost reduction the government has stated that reducing the budget deficit is its most urgent priority. A quick guide to cost control vs cost reduction naseba. Tools and techniques of cost reduction accountingmanagement. Cost control is the procedure where by actual results are compared against the standards, so that waste can be measured and corrective action can be taken.
Cost control also monitors the performance of strategies, programs, projects and operations to ensure that spending achieves business objectives. Cost reduction is commonly implemented in response to an immediate need, and may be a permanent or shortterm measure. Is there a difference in cost control vs cost reduction. Sep 17, 2017 this doesnt necessarily involve cost reduction but is a process of confirming that spending conforms to plans, policies and regulations.
Cost control, reduction and estimation in business. Replace only with the same orequivalent type recommended by the manufacturer. The activity of decreasing per unit cost by applying new methods of production in such a way that it does not affect the quality of the product is known as cost reduction. The upcoming difference will update you about the difference between cost control and cost reduction. The process of monitoring and regulating the expenditure of funds is know as cost control. While cost control, regulates the action to keep the cost elements within the set limits, cost reduction refers to the actual permanent reduction in the unit cost.
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