Vinod Bidwaik
http://vinodtbidwaik.blogspot.com
Strategic Cost Control
Types of CostsProductive Costs: Provide value to customer
Support Cost: Necessary, but don't benefit Customer
Waste: No value to customer
Avoid WasteBy rectifying mistakes
By not producing items that nobody wants
By eliminating some of the processing steps that may not be required.
By stopping movement of employee without purpose
By unwanted transport of goods or movement without real purpose
By expediting the upstream activity, so that people or assets may not wait idle
By measuring all the costs and inputs of a particular process.
Form of WasteWaste of material
Waste of machinery
Waste of money
Waste of customer
Waste of supplies
Waste of manpower
Waste of space
Waste of ideas
Organizational controlPlanning & controlEffective controlsControls through teamworkVisible measurementMeasurement of failureRisk ManagementValue added activityElimination of non value added activityChange controlStandardsGood Housekeeping
Effective ControlsBy measurement, appraisal and actions
Process work right
Process work on time
Process work economically
Process work fast
Process work when customer change their mind
Management controlFinancial control
Organizational control
Production control
Quality control
Stock control
Debtors Control
Profit planning, control & improvementBudget & budgetary control
Marginal costing
Cost volume profit analysis and break even charts
Differential & comparative cost analysis
Strategic thinking about cost controlDoes the cost allocation mechanism work?
Can functional heads distinguish those costs assigned to their activities over which they may have some influence?
Are Managers fully aware of the cost implications of their own decisions?
Two formsRestraints: Weak & over detailed and stifle the initiative of managers
Freedoms: Often fail through inadequate information on full costs
Cost control & cost reductionCost Control
Represents efforts made towards achieving a target or a goalTo set up a target, ascertain actual performance & compare it with Targets, check variance & take measuresAssumes existence of standards or norms which are not challengedIs a preventive function, costs are optimized before they are incurredLacks dynamic approach
Cost ReductionRepresents achievement in reduction of costNot concerned with the maintenance of performance according to the standardsAssumes existence concealed potential savings.Corrective functionContinuous process of analysis The main stress is upon in Why of a thing.
Why controls?Better planning
Improved motivation
Economic use of time
Improved competitive edge
Increased commitment
Better decision making
Improved efficiency
More profit
Planning overhead cost controlEstablish company objective and targets
Develop detailed programmes
Organize resources to meet the objectives
Establish performance standards
Develop a system of budgets
Report on performance
Basic elementsProductivity:
More production in lesser manpower
Or
More manpower to produce even more
Doing more with lessDeliver more of Profits, Productivity, Quality, Sales
With less of Money, Staff, Time, Machinery
StrategyIs a means to achieve goalsLinks all parts of an organizationCovers all major aspects of an organizationIs a long term planEnsures that all parts of the plan are compatibleIdentifies basic issues such asWhat is our business?What should it be?What are our products/services, functions, markets?What should we do to achieve our objectives?
StrategyIs a result of analyzing the strength & weaknesses of the organization
Determining opportunities & threats
Is an organization’s planned response to its environment over time.
Elements of Strategy Goals/objectives to be achieved
Policies for action
Programme to achieve goals within the set limits.
Strategic CostsCan you define your strategic costs?
What is your attitude towards costs?
What is your approach towards cost cutting?
Do you practice the new art of cost cutting?
What can you do yourself to cut costs?
Are your profits cost effective?
Think big…………….. But don’t throw away the small small parts, nuts and bolts..
Attitude towards cost Means knowing when, how and which costs to cut
One that value wise spending, prudent cutting and organizational flexibility
Hidden costsThink bottle necks
Cycle times
Downtime rates
Machine set up times and changeovers
Reuse of scrap material
R&D
Procure time
Methods & Procedures
KISS
Keep It Short & Simple
Simple production control
Simple Communications
Simple Measurement
Agree with suppliers to take five days longer credit
Cut debtors days by five through better collection
Reduce stock by 5% by using Material Management techniques. (JIT, FIFO etc)
Get one new customer per day/week
ProceduresCustomer needs
Organization needs
Employee needs
Do we need procedures and processes?
If yes when?
4 W 1 HWhy: Is it necessary? Should it be done at all? Why?
Where: Should it be done? Here or somewhere? Why?
When: Should it be done? Now, sooner or later?
Who: Should do it? Same person, other persons?
How: Should it be done? As at present or another way? Why?
Efficiency & Effectiveness
Efficiency: is to know everything
Effectiveness: is to deliver on time or before time.
Concept Description Characteristics Measurement
Efficiency Are we doing things right?
Easy to monitor and measure against standards but not always linked or identifiable with ultimate goals
Activity level,Costs
Effectiveness Are we doing the right things?
Indirect, subjective appraisal, Frequently impacts on sales, profits or other measures of success
RevenueMarket ShareCompetitive perception
Employers don’t pay wages- they only handle the money. Product pay wages…. Henry Ford
Don’t reduce staffAsk more from your key people
People are better than you think
Thank you!
Vinod Bidwaikhttp://vinodtbidwaik.blogspot.comVinod Bidwaik is the seasoned HR professional working with DSM India Pvt. Ltd. as the Head-HR forIndia operations. He has wide experience in large Indian and Multi-National companies like M & M,Semperit Group and Sakaal Media Group on senior level positions. He has rich experience in HR andIR. He has an expertise working on greenfield projects and establishing HR department. Heimplemented various HR practices; OD interventions in his organizations. During his tenure withSemperit, the company was awarded for Best Innovative HR Practices during 2002 by NIPM. He holdsMaster degree in Personnel Management, Diploma in Production Management. He is the regularwriter for various management journals like BMA Review, Human Factor and other managementJournals. He is on editorial advisory board of CJMR, Journal of Management Research of CMRD, atPune. He writes regular columns in various newspapers on management and development. He isinvited for Guest lectures on specialized subjects by various management and engineeringinstitutions. He is a life member of Bombay Management Association and holds various honorarypositions in different associations.
Disclaimer: Views expressed here are his own views and do not represent his organization's (current & past) views.