Cost is one aspect of the company’s budget that must be managed effectively and efficiently. The recent trend has shown that most organizations are more concerned with cost than profitability and all their efforts are channeled to ensure that business costs are kept as low as possible. The notion is that profitability does not depend on sales volume but on how low costs are kept. 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 cease operations, shut down entirely, 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, pay cuts, allowance reductions, diesel/gas savings 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 not employed or 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 predicted to be one that has come to stay with us for quite some time.
It is not convenient for organizations to accumulate ways to reduce their costs. Depending on the organization and what it is involved in, the costs could be well addressed using different cost management strategies. The cost pattern of organizations might actually be different, but broadly speaking there are two kinds of costs: fixed costs and variable costs or capital expenses and recurring expenses.
CAPEX/FIXED COST MANAGEMENT
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 asset or machine to be purchased.
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 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 the 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 effectively managed if captured well through the following:
1. Fire workers whose work is not of significant importance or negotiate with them for a pay reduction
2. Keep phone and stationery costs low by promoting the central call center at the front desk by routing all calls through the central phone and transferring calls to the department or person who needs the call instead of each person to their phone with high phone charges
3. Shutdown of the generator and fuel consumption 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 just suggestions, and in fact, may not work for your organization. The point, however, is that costs must be well addressed and all efforts must be channeled towards their reduction in order 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 well explained to them because they can resist it, frustrate it and cause more trouble, thus paving the way for higher cost. The cost reduction should not be too sudden and kill other people. It has to be done with absolute care and kindness.
