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 Cost control is simply the prevention of

waste within the existing environment.
 Cost control is the procedure where by
actual results are compared against the
standards, so that waste can be
measured and corrective action can be
 Cost control is process of utilizing the
available resource economically.
Cost reduction may defined as an attempt
to bring cost down.
 Cost reduction implies real and
permanent reduction in the unit costs.
 The goal of cost reduction is achieved in
two ways
By reducing the cost per unit
Increasing the productivity
 The manufacture of plastic articles using injection die
casting technology gives rise to small quantities of
waste, which previously went to the recycling
industry. A crusher has been installed in order to
return this waste material directly into the production
process, after transforming the waste material to a

 The granulate obtained in this way can be added to

the production process without impairing product
quality. The savings are about 220,000 kilograms of
new injection die casting granulate per annum. As
the cost of making the granulate is 75% below the
cost of new material, It also eliminates the disposal
charge for used plastic.

Êeplacement of business travel by using

modern electronic communications

   J. Cost reduction is not concerned with
J. Cost control process involves setting targets and standards. Cost
setting targets and standard, reduction is the final result in the
ascertaining the actual cost control process.
performance, comparing the 2. Cost reduction aims at improving the
actual performance with standards. It challenges standards
standard, investigating the and assumes existence of
variances and taking corrective concealed potential savings in
action. standards.
2. It aims at achieving the standard 3. It is continuous, dynamic and
3. Follows conservative procedure innovative in nature, looking always
4. It is a preventive function for measures and alternative to
5. In cost control, costs are reduce costs.
optimized before they are 4. It is a corrective function
incurred 5. In cost reduction, there is always
6. It is generally applicable to items assumed a scope for reducing the
which have standards incurred costs under controlled
7. It contains guidelines and conditions.
directive management as to how 6. This is applicable to every activity of
to do a thing. the business
7. It adds thinking and analysis to
action at all levels of management
Benefits from cost control and reduction programme

Better and economic use of men, machines

and money Êeasonable prices

Optimum level of productivity Better standing in competitive market

Increased exports More foreign earnings

Optimum level of quality

Optimum profitability

Optimum return on capital employed

Optimum return on shareholder¶s funds

Confidence in investors
Better chance for expansion
Economic stability
Increased credit worthiness
 roduct improvement
Quality, time, minimisation of waste, design
 roduction method and layout
Material control, labour control, production layout, systems
analysis, time and motion study, work measurement,
Standardisation, tools, equipment, modernization and apply
 Marketing areas
Channels, promotion schemes, research, area responsibility,
remuneration to executives, advertising methods, after-sales-
services, packaging method, material handling, transport
Administrative areas
policies, procedures, rules, efficiency, economies of
scale, welfare measures, availability servicing facility,
and constant motivation to staff
 Êesource Êeducing rojects

Staffing by activity
Staffing on a J2 hours shift basis
Decentralizing transport services
Closing low activity departments during holidays
Shared services arrangement
Telephone interconnect systems
Waste deposal system/ treatment plant
Development of accurate census forecasts
Employee incentive plan
Computerized inventory systems
 rice Êeducing rojects

Group purchasing arrangements

Negotiating professional contacts on volume of
professional work and not percentage of revenue
Êebates from state workers¶ compensation funds due
to safety programs
Self insuring unemployment insurance benefits
Installing own well and water system
 Capacity utilization is a key driver in cost
management and production efficiency .
 Capacity utilization is important for all organizations,
and at all levels of an organization.
 In addition, it becomes important in many industries
where fixed costs are high.
 The capacity utilization decisions have a real impact
on product lead times, customer responsiveness,
costs and a firm¶s ability to compete: output,
customer demand, operational costs, improved
production capacity, long-term resource
commitment, and competitiveness

 In this case, the company¶s attention turns to

finding low-cost alternatives to meeting customer
demand, such as moving production to areas
where labor rates are low.
 The company can use other alternatives to
deploy this approach such as reducing material
costs but not at the cost of quality, substituting
technology for people when economies of scale
provide savings.
 Organization has few fixed assets - few core competencies
critical to long-term market success
 While any non-core activity or capacity resource is
 This way has strengths such as increased flexibility and
responsiveness, reduced inventory risk, and improved
returns on investment. However, optimization capacity
utilization through this way is not without weaknesses or
 Thus, the cost and profit performance should be compared
to investment levels in order to detect these undesirable
trends. In addition, using the bundling of several optimization
ways provides the greatest potential for overall performance
 Finally, any of the previous ways can be used
alone, however, it is best to choose several
dimensions of capacity as the basis for the
capacity optimization effort.
 For example, low cost and profit maximization may
be pursued jointly if resources are focused on the
areas where cheap resources are available to
meet a currently unmet level of demand.
 For each way, the goal must be to identify what
business risks each represents to the organization,
and then choose one or more offsetting ways to
ensure that these risks are reduced or managed.