Cost management is the set of different decisions which are taken by manager for controlling the cost. To control the cost is the aim of cost management. Cost accounting and management accounting helps to manage cost because both branches of accounting provide useful information. On these information, we can manage our cost proper way. Except cost accounting and management accounting, we are writing some new points which can also help to control cost.
Cycle Time
In this busy world, time is money. If we waste our time, we have to pay for this. Minimum cycle time can save our cost. For example, we have developed good production techniques. With this, we can fastly produce our goods. It will decrease raw material holding cost and idle labor cost because we will not leave our big production resources free. Like this, if manager has developed low time for cash conversion cycle. It will decrease cost of loan because we can convert our cash more fastly from our sales. For this, we have to concentrate on following points:
a) To reduce production processing time : There may 100 of process for completing our production. If we save one second in each process, we can save 100 seconds. This time can be used for other good purposes which may reduce the product cost.
b) To bring co-ordination between production and sales : When manager will do work for bringing co-ordination between production and sales, it will reduce both production and sales cost. For this, we have to open our eyes and find what is happening in this world. We have to take decisions according to this.
Benchmarking
This is new and wonderful way to manage cost. It means to see our business processes and other companies' business processes in our industry. After this compare both. Follow the best practices of each business process. I can explain it with my simple personal example. I was two plastic chairs for my computer work. But due to sitting 8 to 12 hours on chairs, I feel discomfort. So, I went to market for buying relax chairs. Each relax chair price was Rs. 5000. It means, I had to pay Rs. 10000. But when I went to market for buying towel, I saw that a businessman is using same type of plastic chairs with throne. He was feeling very good. I took the idea from him and I bought 4 relax thrones and its cost was just Rs. 400. I also bought two big white towel whose cost was Rs. 300. Same way, I converted my hard plastic chairs in relax chairs. Now, I am feeling comfort within Rs. 700. I saved Rs. 9300 just for sake of Benchmarking. If we use benchmarking in every type of decision, you can use your resources better way and manage your cost.
Employees Empowerment
You know that our employees are our big business assets. If we make them just slave, we can not manage cost better way because they will also feel just like slave and they leave our business. With this, our cost of HR will increase and its effect will also on other department because there will be big time to train new employee. So, for better future planning, we need to empower our employees. We have to give freedom to them to take their own decisions. We have to contribute their ideas and knowledge for our business. We talk with them in our business's conferences. With this, they will open and share their knowledge for our business.
Value Chain
As cost manager, we will have to study value chain. Every product is made and distributed with different activities. Each activity increases the value of that product. We have to make a good plan for each part of chain. For example, we have to make plan of our supply chain, then we have to plan for our product development, then to plan for product selling. These planning will reduce our cost and give more value.
Impact of ERP
ERP means to record each data of company and spread each department and branches and divisions. If we use online system of ERP, we can see its impact of our cost reduction. We can take also its other benefits.
In this busy world, time is money. If we waste our time, we have to pay for this. Minimum cycle time can save our cost. For example, we have developed good production techniques. With this, we can fastly produce our goods. It will decrease raw material holding cost and idle labor cost because we will not leave our big production resources free. Like this, if manager has developed low time for cash conversion cycle. It will decrease cost of loan because we can convert our cash more fastly from our sales. For this, we have to concentrate on following points:
a) To reduce production processing time : There may 100 of process for completing our production. If we save one second in each process, we can save 100 seconds. This time can be used for other good purposes which may reduce the product cost.
b) To bring co-ordination between production and sales : When manager will do work for bringing co-ordination between production and sales, it will reduce both production and sales cost. For this, we have to open our eyes and find what is happening in this world. We have to take decisions according to this.
This is new and wonderful way to manage cost. It means to see our business processes and other companies' business processes in our industry. After this compare both. Follow the best practices of each business process. I can explain it with my simple personal example. I was two plastic chairs for my computer work. But due to sitting 8 to 12 hours on chairs, I feel discomfort. So, I went to market for buying relax chairs. Each relax chair price was Rs. 5000. It means, I had to pay Rs. 10000. But when I went to market for buying towel, I saw that a businessman is using same type of plastic chairs with throne. He was feeling very good. I took the idea from him and I bought 4 relax thrones and its cost was just Rs. 400. I also bought two big white towel whose cost was Rs. 300. Same way, I converted my hard plastic chairs in relax chairs. Now, I am feeling comfort within Rs. 700. I saved Rs. 9300 just for sake of Benchmarking. If we use benchmarking in every type of decision, you can use your resources better way and manage your cost.
You know that our employees are our big business assets. If we make them just slave, we can not manage cost better way because they will also feel just like slave and they leave our business. With this, our cost of HR will increase and its effect will also on other department because there will be big time to train new employee. So, for better future planning, we need to empower our employees. We have to give freedom to them to take their own decisions. We have to contribute their ideas and knowledge for our business. We talk with them in our business's conferences. With this, they will open and share their knowledge for our business.
As cost manager, we will have to study value chain. Every product is made and distributed with different activities. Each activity increases the value of that product. We have to make a good plan for each part of chain. For example, we have to make plan of our supply chain, then we have to plan for our product development, then to plan for product selling. These planning will reduce our cost and give more value.
ERP means to record each data of company and spread each department and branches and divisions. If we use online system of ERP, we can see its impact of our cost reduction. We can take also its other benefits.
Comments