Cost control is different from cost reduction. The word "control" indicates an exercise in restraint. When expenses are controlled, they are restrained from growing larger than they should grow. The process of cost reduction, on the other hand, concerns reducing expenses that are too high. Controlling is a very different concept than reducing.
In terms of business practices, cost control is a much better plan of action. It indicates that expenses have not been allowed to grow past a reasonable level than what the expenses are intended to accomplish. There could probably be a lot of debate over which is easier, controlling or reducing expenses, but controlling costs is the best way to maintain or increase cash flow.
Cost control requires management from the start of the business. Cost reduction is a reaction to a problem. It is always better to be proactive versus reactive. To control costs means managers are staying on top of operations and attempting to create the maximum profit margin. Managers who must implement a cost reduction plan are solving a problem that might possibly have been avoided.
Cost control affects every expense category in a company. But cost control is a lot more than just saying "no" to incurring an expense. It is a management technique that requires all business activities to be evaluated on several levels.
- Is the activity designed to operate as efficiently as possible?
- Have necessary materials being purchased at the lowest price while maintaining quality?
- Can the process be mechanized or computerized to minimize labor costs?
- Have the cost of service levels been related to the benefits provided in a nonprofit?
Cost control is a systematic review of the resources a company uses to achieve its mission.
Cost control is cost management. Reviewing expenses to find areas that can be cut is not nearly as effective as upfront cost management. To determine if costs are remaining within reason, it is desirable to compare expenses against industry benchmarks. Expense benchmarks are indicators of competitive standing.
One of the major benefits of cost control is the ability of a company to keep cash flow at necessary levels for operations. With cost management, excessive amounts of cash are not tied up in too much inventory, too high supply stocks, or over staffed departments. This keeps cash available for other purposes including navigating economic waves, expansions needs, or equipment maintenance and repairs.
Many companies use outside assessments to analyze company efficiency including the results of cost control efforts. This not only brings new viewpoints to the process, it provides important internal review. Sometimes it is difficult to be objective when you deal with the management of a business on a day-to-day basis. Professional analysts can bring a broader scope to operations resulting in improved cost control strategies.
A customized assessment of company operations can improve cost control measures already taken in a company. Businesses that understand the difference between the concepts of constraining and reducing understand the value of expert advice. Management's attitude towards cost control is often its own benchmark – it shows how well a business understands what it takes to succeed.
Business success is about teamwork and it takes teamwork to control costs. A single manager cannot do the job alone without employee cooperation. Whether a company utilizes a 3rd party review or not, cost control is about keeping control so a business can have unconstrained success!
Cost Control Strategies
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