Cost Management-final 31
Cost Control implies that cost should not exceed the budgeted or standard limits. If it exceeds, investigation is necessary. Cost reduction means waste reduction, expenses reduction and increased production.
The process of cost control is to set a target ascertain actual performance and compare it with the target, investigate the variances and take remedial measures. Cost reduction is not concerned with maintenance of performance according to the standards. Cost control assumes existence of standards or which are not challenged. Cost reduction assumes the existence of concealed potential savings in the standards or norms which are, therefore subjected to a constant challenge with a view to improvement by bringing out the saving.
Cost control is a preventive function, costs are optimissed before they are incurred. Cost reduction is a corrective functions. It operates even when an efficient cost control system exists. There is room for reduction in the achieved cost under controlled conditions.
The possibilities of reducing the cost of a product in the applications of cost reduction methods. The lines of approach in laying out a cost reduction plan are suggested below :
:- Cost reduction starts with the design of the product. Product design being first step in manufacturing of a product, the impact of any economy or cost reduction effected their stage will be felt through out the manufacturing life of the product. Design is therefore the most important field where cost reduction may be attempted.
Efficient designing for a new product or improving the design for an existing product, reduces cost in the following manner :-
(i) Material Cost :- Cheaper substitute , higher yield and less quantity and varieties of materials, cause reduction in cost.
Labour Cost :- Reduced time of operation and increased productivity reduce cost.
Cost of gigs, tools and fixtures are to be minimised.
Standardisation and simplification in variety increases productivity and reduces costs.
Organisation :- It is not possible to measure the extent of cost reduction resulting from an improvement in organisation nevertheless, economies are bound to be achieved if the following considerations are looked into :-
(i) Definition of each function and responsibility.
Proper assignment of task and delegation of responsibility to avoid overlapping
A suitable channel of communication between various management level.
Co-operation and closed relationship between the various executives.
Removal of doubts and fiction.
Encouragement to employees for cost reduction suggestion.
A cost reduction programme should study the factory layout and the utilisation of the existing equipment to determine whether there is any scope of cost reduction by elimination of wastage of men, materials and maximum utilisation of the facilities available.