Cost is one aspect of a company’s budget that must be managed effectively and efficiently. The recent trend has shown that most organizations are more concerned with costs than profitability and all their efforts are channeled to ensure that the costs of the business are kept as low as possible. The notion is that profitability does not depend on sales volume but on how well costs are kept down. Different means are being adopted to reduce the cost of an organization.
Following the economic collapse or recession that hit the world in early 2009, many organizations were forced to go out of business, close completely, or be sold. Others that are still in operation are struggling to survive and are doing everything in their power to reduce all cost elements within their total system, from layoffs, salary cuts, reduction in allowances, savings on diesel/gasoline used by electrical machines, merging responsibilities and positions, employing people with not too high qualifications in exchange for low wages, etc.
Organizations that do not publicize cost management are now embracing the concept, and in fact, cost managers are neither employed nor consulted to help minimize costs in order to stay in business. This challenge in the world economy has drawn the attention of many experts, authorities, scholars, critics, etc. to find a solution to the malaise that is forecast as one that has come to stay with us for quite some time.
Organizations don’t want to hoard ways to cut costs. Depending on the organization and what it is involved in, costs might well be addressed using different cost management strategies. Organizations’ cost pattern may actually be different, but broadly speaking there are two kinds of costs: fixed costs and variable costs or capital costs and recurring costs.
MANAGEMENT OF CAPITAL EXPENDITURE/FIXED COSTS
This cost class can be managed through any or a combination of the following:
1. Reduce investment in fixed assets or use alternative assets or machines for the purchase of assets or machines.
2. Choose the best purchase method, eliminating many of the agents or intermediaries for the acquisition of the asset or machine. This helps reduce the cost of acquiring the asset/machine
3. Keep the maintenance cost as low as possible by employing a maintenance manager instead of taking the machine to the maintenance company all the time with huge bills.
4. Let experts manage the various assets to reduce maintenance costs due to breakdowns and mishandling.
5.etc
MANAGEMENT OF RECURRING EXPENSES / VARIABLE COSTS
This asset class could be managed effectively if captured well through the following:
1. Fire workers whose work is not of significant importance or negotiate with them a salary reduction
2. Keep phone and stationery costs low by encouraging the central call center at the front desk by routing all calls through the central phone and transferring calls to the department or person needing the call instead of each person to their phone with high phone bills
3. Shutdown of generator and fuel consuming machines for a period of one hour, it can be during rest time
4. Cut back on concessions a bit or order them around exceptional performances
5. Manage invoices efficiently
6.etc
These are merely suggestions and, in fact, may not work for your organization. The point, however, is that costs must be addressed well and all efforts must be channeled towards their reduction to improve the profitability of the organization. Follow these steps:
1. What are the cost elements in this organization? ID
2. What proportion of the organization’s profits did they consume? Analysis
3. How can we reduce the cost? Decision making
4. How do we do this? Implementation
5. How do we know we did it right? Control and follow up
In short, in reducing the cost of the organization, it must be taken into account that people (workers) are very important and deserve the best. It should be explained well to them because they can resist it, frustrate it and cause more problems, thus paving the way for a higher cost. Cost cutting should not be too sudden and kill other people. It has to be done with absolute care and kindness.