Survive Bad Inflation With These 4 Effective Cost Control Methods
The cost of making a particular product or delivering a particular service is calculated by the finance and accounts department, with the help of a technique that's termed as Cost Accounting. The principle of cost accounting is very simple. The total cost of manufacturing a set or lot of goods or services is added up together and divided by the number of units that have been produced, which gives the per unit production cost. Cost accounting also reveals unneeded expenditures that are titled as ‘overheads’. The accounts department also derives some financial statements that give us a specified amount of overheads that are incurred.
What's Cost Control
There is no exact rule or definition of cost control. The term cost control implies the usage of policies and internal rules that help you to cut the cost of a particular management process. Cost control methods target the reduction of cost. Maintenance of quality and quantity of a particular production process or service generation.
Methods of Cost Control
Any business or corporation has to encounter difficulties, which are practical, financial, as well as technical. The ones that survive these difficulties live to tell their stories of success. The following are some simple successful methods to control costs.
Review and Modify Business Model
There is a great, economically and commercially successful business model, that's used to lay down the foundations of any company. The business model must be, however, subject to small and big changes. It means as a manager, you should subject the business model to changes according to your competitors actions and markets status. By the term change, I also mean that you should be upgrading and improving all possible business operations. You need to come up with new process and procedures to reduce costs.
One of the best ways to start controlling costs it to have daily updates of production. All possible long and short-term expenditures. Divide all these expenditures, even the ones such as cost of machinery or insurance. Sales, by the number of working days. This will give you a concrete figure of the total amount that's been spent. Similarly, after sales of your goods or services, you may also divide the total amount of sales by the number of working days. This will give you a micro figure about the daily expenditure and sales. It'll definitely help you to zero down on all possible cost problems that you incur.
Cost control management is all about deriving the best outputs in the least cost. Hence, set up a highly efficient and specialized stores department which will oversee all purchases. You may also take a risk and make long-term agreements regarding the quality and quantity of materials that are being supplied to your manufacturing process. This uniformity will ensure a timely, cheap. Assured supply of raw materials.
Time is money! Divide the amount of wages that you give out with the number of work hours per month. Explain to the employees per hour expenditures that you incur. Hence the necessity for time management. You may also install good cost control systems to help your employees to manage their work hours well. A cost control software will also work wonders in the finance and accounts department.
In order to have a set of good cost control techniques at your disposal, you need to think creatively and effectively. You'll also need to think about all the dimensions of expenditures such as time dimension, long and short-term expenditures, per capita wage expenditure, etc. You can also consider all macro and micro costs. For example, the cost of running one team in comparison to the cost of all teams. The cost of running one team compared to the revenue generated by the same team.