Cost control and cost reduction in business require serious thought as well as an organised approach. This whole process if planned and carried out correctly can help reduce waste without impacting the quality of services and products that your organisation is into.
However, this whole concept of cost control and cost reduction is not as simple as it sounds as a lot of businesses start focusing on the wrong strategies to save money which costs them way more in the future. Cost control is not just about reducing expenses, instead, it also involves making the right investments that will save them way more.
If you want to get a clearer picture of the concept of cost control and cost reduction, then you are at the right place. Keep on reading, to understand what they mean, the tips for cost control and cost reduction.
What is Cost Control?
Cost control is defined as a systematic process that includes managing, regulating as well as restraining expenses within an organisation. The approach to cost control is proactive which is aimed at making sure that the resources of a company or business are used in the right manner while cutting down the unnecessary costs. In a nutshell, cost control is an approach that must strike the right balance of expenses and revenue so that the profitability of a business is increased.
What is Cost Reduction?
Cost reduction is defined as a process or business approach that is focused on reducing the unit price of a factory-made product or service. However, this must be done without compromising on the quality of the products or services and by using new and better technologies. The process of cost reduction concentrates on eliminating unnecessary expenses during production, storage, sale, and distribution.
Now that you understand what cost control and cost reduction are, learn about the major difference between cost control and cost reduction.
Difference Between Cost Control and Cost Reduction
Below given is a list of major differences between cost control and cost reduction.
- Cost control is defined as the process that is focused on keeping all costs within prearranged limits while cost reduction focuses on decreasing per unit cost of product without compromising on product or service quality.
- Cost control is a temporary process that is applied when needed while cost reduction is a permanent process.
- The process of cost control is closed when the specified target of a company is achieved while the cost reduction process is continuous and has no visible end as it is implemented to eliminate profligate expenses.
- The process of cost control does not work on the principle of quality maintenance of products while the approach taken for cost reduction works to ensure 100% quality maintenance.
- Cost control is a preventive action as it determines the cost before it occurs while cost-cutting is a corrective action.
Tips to Achieve Cost Control and Cost Reduction in 30 Days
- Fix Realistic Goals: Before you start planning on how to reduce your costs, you must establish realistic goals. By taking this approach you can easily see if your initiatives are going to be successful. Ensure that your goals are detailed and specific with set milestones to measure success.
- Get Staff Buy-In: To achieve your cost reduction goals it is imperative to change the mindset of your organisation. Meet up with your staff and share the benefits of reducing waste from the company. You need to meet the leaders as well to emphasise their role in helping the business reduce costs.
- Re-evaluate Business Expenses: For your cost control and cost reduction approach to be successful, you need to evaluate the business expenses minutely. Pull up all the data for expenses and then come up with an itemised list of expenses. Doing this exercise will help you understand where your money is going and this is a quick way to identify waste.
- Hire Remote Workers and Freelancers: Since the pandemic, working remotely has become the norm and this can help you save a lot of money on office space. Certain freelancers and contractors may indeed have higher hourly rates but they do not need benefits, which can help you bring down your expenses.
- Outsource: Outsourcing often receives a lot of flak but there is no doubt in the fact that it can also give you high-quality products and services at a reduced cost.
- Go for Bundle/Combine Purchasing: This is one approach that can help you in cost-cutting efficiently. Instead of ordering separately for each department, you can combine orders and get bulk discounts.
- Rexamine Your Existing Products/ Services: You must regularly reassess the types of services and products you provide and ask yourself, “Do our customers want this?” What are our competitors doing? Is there a cheaper and more efficient way to deliver the same or better level of service?
- Go Green: This is an extremely important investment. Replace or change your dated appliances, lights as well as fixtures with energy-efficient alternatives. You can also reduce the use of paper by going paperless.
Conclusion
The concept of cost control and cost reduction if applied with proper planning can help your organisation achieve the set financial goals. This whole process requires the right leadership qualities along with the right skills required to do the job.The CFO course offered by Imarticus Learning in association with the Indian School of Business is the perfect path to take your financial leadership skills to the next level. Through this chief financial officer course you will also learn to lead with integrity and purpose.
