Financial Planning and Cost Control Techniques applied to Business Operations and Management

"Cost control by management means a search for better and more economical ways of com­pleting each operation. Cost control is simply the prevention of waste within the existing environment. This environment is made up of agreed operating methods for which standards have been developed."

These standards may be expressed in a variety of ways, from broad budget levels to detailed standard costs. Cost control is the procedure whereby actual results are compared against the standard so that waste can be measured and appropriate action taken to correct the activity.

Cost control is defined as the regulation by executive action of the costs of operating an undertaking. Cost control aims at achieving the target of sales. Cost control involves setting standards. The firm is expected to adhere to the standards.

Deviations of actual performance from the standards are analysed and reported and corrective actions are taken. Cost control emphasis is on past and present. Cost control is applied to things which have standards. It seeks to attain lowest possible cost under existing conditions. Cost control is a preventive function.

Aspects of Cost Control:

Cost control involves the following steps and covers various aspects of management. It has to be brought in the following manner:
(i) Planning:

Initially a plan or set of targets is established in the form of budgets, standards or estimates.

(ii) Communication:

The next step is to communicate the plan to those whose responsibility is to implement the plan.

(iii) Motivation:

After the plan is put into action, evaluation of the performance starts. Costs are ascertained and information about achievements is collected and reputed. The fact that the costs are being reported for evaluating performance acts as a prompting force.

(iv) Appraisal:

Comparison has to be made with the predetermined targets and actual perform­ance. Deficiencies are noted and discussion is started to overcome deficiencies.

(v) Decision-making:

Finally, the reported variances are received. Corrective actions and reme­dial measures are taken or the set of targets is revised, depending upon the administration’s understand­ing of the problem.

The management and control of the resources used in most commercial organisations leaves a great deal to be desired. Waste is growing at such an enormous rate that it has spawned a new industry for recycling and extracting useful materials.

Materials are wasted in a number of ways such as effluents, breakage, contamination, inefficient storage, poor workmanship, low quality, pilfering and obsolescence. All these contribute to significantly increased material costs and all can be controlled by efficient working methods and effective control.

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