DECISION MAKING y Decision making can be regarded as the mental processes resulting in the selection of a course of action among several alternatives. . Every decision making process produces a final choice. can be an action or an opinion of choice. The output choice.

IMPORTANCE OF COST REDUCTION y In A Competitive Market Reducing Selling Price Is Difficult y To Maintain The Bottom Line Any Company Should Reduce The Cost y Cost Can Be Controlled Either By Expenditure Control Or Productivity Improvement Or By Both .

WHAT IS COST REDUCTION y It Is A Preventive Function y It Is Increased Output Per Rupee Of Expenditure Or Reduced Spending Per Unit Of Output y To Achieve Cost Reduction One Should Know The Type Of Activities And The Level At Which They Are Carried Out In A Company And The Type Of Expenditure Incurred .

INDIRECT) .INDIRECT) -LABOUR(DIRECT.VARIOUS COST ELEMENTS y COST IS GROUPED INTO -MATERIAL(DIRECT.INDIRECT) -EXPENSE(DIRECT.

APPROACH TO COST REDUCTION y CROSS FUNCTIONAL TEAM y IDENTIFYING TARGET AREAS y SET GOALS FOR COST REDUCTION y BELIEVE IN KAIZZEN y MEASURE YOUR PERFORMANCE y COMPARE WITH NORMS y TAKE CORRECTIVE ACTION AS REQUIRED .

APPROACH TO COST REDUCTION y COST REDUCTION CAN BE ACHIEVED THROUGH:y CONTINUOUS IMPROVEMENT POPULARLY KNOWN AS KAIZEN .

KAIZEN y KAIZEN IS THE JAPANESE TERM FOR CONTINUOUS IMPROVEMENT: GRADUAL. UNENDING IMPROVEMENT.AND ACHIEVING EVER HIGHER STANDARDS .DOING `LITTLE THINGS BETTER: SETTING.

AREAS OF COST REDUCTION y PROCUREMENT COST y INVENTORY CARRYING COST y MATERIAL COST y MANUFACTURING WAGES y OVERHEADS y WORKING ASSETS COST y GENERAL ADMINISTRATION COST y MARKETING & PUBLICITY COST .

Marginal and Total Costs o Fixed and Variable Cost o Direct and Indirect Cost o Replacement and Original Cost o Opportunity and Industrial Cost o Sunk Cost and Outlay Cost o Incremental cost o Avoidable .The Following Types Of Cost Are Useful In The Decision Areas o Average.

Sunk. These are not relevant. Avoidable.Incremental. Opportunity Cost: a cost that represents the benefit forgone by selecting on alternative over another. Avoidable Cost: a cost that can be avoided if a certain decision is made. These are relevant. Sunk Cost: a cost that is already incurred and irreversible. and Opportunity Costs Incremental Cost: a cost incurred as a result of selecting one alternative over another. .

more able to meet commitments.Example y A sales director is deciding whether to implement a new computercomputer-based contact management and sales processing system. and his salespeople are not computer literate. They are customers. and can work more efficiently with fulfillment and delivery staff. His department has only a few system. He is aware that computerized sales forces are able to contact more customers and give a higher quality of reliability and service to those customers. . literate. staff. computers.

000 .450 each y 1 server @ $3.600 y Sales Support Software @ $15.His Financial Cost/Benefit Analysis Is Shown Below: Costs: New computer equipments:y 10 network-ready PCs with supporting software @ $2.500 y 3 printers @ $1.200 each y Cabling & Installation @ $4.

12 People @ $700 Each y Other Costs: y Lost Time: 40 Man Days @ $200 / Day y Lost Sales Through Disruption: Estimate: $20.8 People @ $400 Each y Keyboard Skills .y Training Costs: y Computer Introduction .000 Total cost: $114.000 y Lost Sales Through Inefficiency During First Months: Estimate: $20.000 .8 People @ $400 Each y Sales Support System .

000 / year y More ability to manage sales effort: $30.Benefits: y Tripling of mail shot capacity: estimate: $40.000/year .000 / year y Ability to sustain telesales campaigns: estimate: $20.000 / year y Improved efficiency and reliability of follow-up: estimate: $50.000 / year y Improved accuracy of customer information: estimate: $10.000 / year y Total Benefit: $ 180.000 / year y Improved customer service and retention: estimate: $30.

decide to include intangible items within the analysis. change. however. widely used and relatively easy tool for deciding whether to make a change. y To use the tool. it. firstly work out how much will be the cost for change to make. y Cost/Benefit Analysis can be carried out using only financial costs and financial benefits. Then calculate the benefit you will gain from it. work out the time it will take for the benefits to repay the costs.Key points: y Cost/Benefit Analysis is a powerful. y Where costs or benefits are paid or received over time. . You may.

Prepared by :.Mohammed Rafeeq C.S. :- .

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