What are some management techniques in cost management
Cost Management refers to the practice of estimating, recording and closely the monitoring the costs associated with running a business.
It ensures proper control over the costs of the business and helps tackles cost overruns that adversely impact the business.
Cost management/mismanagement impacts every aspect of the business right from procurement to sales, delivery and after-sales.
Cost Management occurs at all levels of management and encompasses the line management, middle management and top management.
There are several ways to control and monitor costs of a business. They are:
- Estimating Costs
- Planning Costs
- Tracking and Analysing Costs
- Time Management
Estimating Costs:
This is often the first step of a project or a business. The cost estimates include estimates of prices of raw material, capital equipment, labor etc.
Cost Estimates must be based on sound information and they must be valid and current in order to be effective.
The cost basis for each head must be clearly stated in simple language.
For e.g. the current and estimated prices of raw material, batch sizes for which a particular price is available, other costs involved in transportation etcetera can form the base for the inventory estimate and this can be used to arrive at a reasonable estimate with the help of historical consumption data.
Cost estimates are reviewed at the beginning of every new project and continuously at fixed time intervals.
Planning and Budgeting Costs
The cost estimates are used in making a cost plan. A good cost plan lists the main costs heads with a clear note on the bases of estimates.
Costing plans may be either activity based or time based.
Activity plans list the costs involved for a particular activity for a given period of time.
Time based plans show the planned costs for each activity along with the timing of costs.
These plans are approved by the top management and offically becomed the budgeted costs for a project or a specified time period.
Step by step
Solved in 7 steps
