Cost Management Components
As I wrote in my introduction, a Cost Management Program consists of two basic parts. Cost reduction and cost control. Cost reduction is a process that is done occasionally, but creates an awareness and thought process that is always present. Cost control is an everyday series of policies and procedures that become a normal part of business operations.
Cost reduction is the process of evaluating expenditures and operations to find and eliminate waste, redundancies, and lost time.
There are hundreds of places to look and each one has the potential to add money to your bottom line. Supplies, maintenance, technology, utilities, and insurance are only a few of the things that need to be analyzed.
Operational efficiency analysis and improvement is another area that can, and usually does, yield significant savings. Time is money!
A well thought out plan looks for ways to reduce costs through better purchasing or supply chain cost reduction. That doesn’t necessarily mean new suppliers or lower prices from your current supplier. There are other things that suppliers can do to save you money.
Remember, reducing costs at the expense of quality or service is not what works. Your quality and service standards will be the measure of what changes can and should be made.
Cost control is the evaluation of spending before and after it occurs and involves creating, implementing, and monitoring policies and procedures throughout your company.
It involves budgeting, purchasing and accounting policies, monitoring supply and raw material costs, job costing, and daily, weekly, monthly, and annual analysis. That sounds like a lot, but when designed correctly, it is routine, easy, and takes very little time. The result is a well controlled, more competitive, and profitable business.
The combination of these two parts creates a Cost Management Program that can produce dramatic, long term, sustainable savings and a better, leaner, more profitable business.