Cost Control and Cost Reduction Strategies in Business: Understanding Implementation Challenges

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Understanding the concepts of cost control and cost reduction is crucial for businesses, but implementing them can be challenging. This chapter explores the influencing factors for success in cost control and reduction, emphasizing the importance of cultural aspects, leadership, and management approaches. It delves into the significance of business discipline, learning approaches, and skill levels required for effective cost management. By examining case studies and practical applications, this resource offers insights into achieving cost efficiency while maintaining quality standards.

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AURANGABAD CHAPTER Cost control and Cost reduction EASY TO UNDERSTAND BUT HARD TO IMPLEMENT EASY TO UNDERSTAND BUT HARD TO IMPLEMENT LESS OF THEORY MORE OF CULTURE LESS OF THEORY MORE OF CULTURE

INDEX 1. Basic Concepts : Cost Control and Cost reduction 2. Influencing factors for success of Cost control and cost reduction 3. Case studies 1. Case Analysis 1 2. Case Analysis 2 3. Case Analysis 3 4. Case Analysis 4 5. Case Analysis 5 6. Case Analysis 6 7. Case Analysis 7 COST CONTROL AND COST REDUCTION AURANGABAD CHAPTER

Basic Concepts Basic Concepts Cost Control: Cost Reduction: To maintaining the costs as per the set standards/Budget Achieving the predetermined costs To lay down a target, ascertain actual adherence to standards A preventive function Applicable to items of costs which have standards /Budget Budgetary Control and Standard Costing To economize the unit cost without lowering the quality of the product Reduction of costs by finding new ways or methods Challenge to the standards themselves A corrective function Applicable to every activity Value engineering/value analysis, work study, operation research, simplification , ABC analysis, VSM, reverse Engg. COST CONTROL AND COST REDUCTION AURANGABAD CHAPTER

Influencing factors for success of cost control and cost reduction Why the same techniques of CC & CR are getting success in some business and fails in others . COST CONTROL AND COST REDUCTION AURANGABAD CHAPTER

Culture Need of Business Leadership Success of CC & CR Management approach Skill Level COST CONTROL AND COST REDUCTION AURANGABAD CHAPTER

Influencing factors for success of cost control and cost reduction Cultural Approach Need of Business How Business is Developed Discipline Learning approach Value for money Business Margin Health of business Competitor s moves Life cycle of Business Skill Level Management Approach Analytical skill Technical know-how Communication skill Learning capabilities Level of acceptance Failure treatment Involvement Perception about resources COST CONTROL AND COST REDUCTION AURANGABAD CHAPTER

Influencing factors for success of cost control and cost reduction Leadership Confidence, Passion, commitment To inspire and to motivate team Vision and Anticipation Accountability COST CONTROL AND COST REDUCTION AURANGABAD CHAPTER

Real Case Analysis - 1 Lack of Dedication A turnkey project & machine manufacturing company No System of On-line Quotation costing Two year s comparison of Project Quotations Vs Actual Cost No proactive approach of Monitoring and control Last Year : (-450) Lacs Current Year : + 120 Lacs More towards order acceptance Vs Margin analysis COST CONTROL AND COST REDUCTION AURANGABAD CHAPTER

Real Case Analysis - 2 No Budget control and monitoring of Cost An Automobile parts manufacturing business No Functional Targets and Review mechanism First time implementation of Costing Function No product Costing and Product wise margin analysis Profit improvement by Rs 20 Lacs + Rs 15 Lacs per month Products Quantity was the only measure for performance COST CONTROL AND COST REDUCTION AURANGABAD CHAPTER

Real Case Analysis - 3 No Budget control and monitoring of Cost An Automobile parts manufacturing business The Raw Material cutting activity is outsourced without material Raw Material Cutting cost is huge, 3 times than normal cost Billing was on out put basis Profit improvement by Rs 3 Lacs per month There was no monitoring of Machine condition, tools life etc COST CONTROL AND COST REDUCTION AURANGABAD CHAPTER

Real Case Analysis - 4 Tools manufacturing division decides the tool machining time & Rates An Automobile parts manufacturing business Purchase asks 2 to 3 quotations and negotiates based on their skill Die & Tools manufacturing costs were too high in two plants No comparison or advice from Design section Profit improvement by Rs 12 Lacs per month & Rs 5 Lacs per month It was an overlooked area of the business and no cost and margin review COST CONTROL AND COST REDUCTION AURANGABAD CHAPTER

Real Case Analysis - 5 Decision making structure is not effective A Packaging business Fear of inferiority among employees Enegy cost is considerable high in industry Lack of innovation and risk taking capabilities Opportunity loss of Rs 25 Lacs/month COST CONTROL AND COST REDUCTION AURANGABAD CHAPTER

Real Case Analysis - 6 Product performance was measured by Output/shift An Automobile parts manufacturing business Product performance was measured by VA/Shift Product profitability was not monitored No concept of product profitability and no culture of costing Profit improvement by Rs 10 Lacs per month Purchase of RM was considered as only source of profit COST CONTROL AND COST REDUCTION AURANGABAD CHAPTER

Real Case Analysis - 7 Product performance was measured by Output/shift An Automobile parts manufacturing business Product performance was measured by VA/Shift Product Profitability is monitored properly but not for the all processes No concept of product profitability and no culture of costing Huge cost core manufacturing but its not at all known. Purchase of RM was considered as only source of profit Hidden Loss of Rs 15 Lacs/Month COST CONTROL AND COST REDUCTION AURANGABAD CHAPTER