cost management
cost management
Cost management is the process of planning and controlling the budget of a business. Cost management is a form of management accounting that allows a business to predict impending expenditures to help reduce the chance of going over budget.
supports that customer satisfaction is essential in a free market due to the following reasons:-
l The products or services from the service providers are similar;
l Customers within the market are price-sensitive;
l Customers have stronger bargaining power as the cost to switch to another service is considered as low.
The hospitality industry has strong market competition; therefore, customer satisfaction and retaining loyalty will be crucial for a hotel’s success.
Cost Management Techniques
Owning and operating a business is expensive. While larger businesses often have significant financial backing to counteract these costs, small business owners need to be more resourceful. Implementing some effective cost management techniques should keep you afloat even in a tough economy. Here are some idea
1. Minimize overhead.
One of the quickest ways to get in over your head financially is with exorbitant overhead costs. This can especially be a problem for brick and mortar businesses paying for rent, energy bills, and inventory space. If overhead costs are eating away your profit, you should brainstorm some ideas to cut back. With e-commerce sales steadily rising, many businesses are doing away with brick and mortar stores altogether and strictly selling online. According to Forrester Research, online retail sales will reach nearly $250 billion in 2014. Conducting most or all your sales online can dramatically reduce costs while allowing you to reach a larger demographic at the same time.
2. Capitalize on technology.
The right technology can be an entrepreneur’s best friend. Not only does it streamline many business operations, but it levels the playing field and allows small businesses to compete with much larger ones. There are numerous options you can implement and customize to meet the specific needs of your business. Here are a few possibilities.
- Customer Relationship Management (CRM) Software – This revolves around software to streamline and automate areas such as managing contacts, customer service, email, social media, and technical support. By keeping things organized and spotting trends, you ensure that your business is equipped to keep customers happy while increasing productivity.
- Enterprise Resource Planning (ERP) Systems – Using this type of technology helps you create a solid infrastructure while maintaining steady operations. This often covers the financial/accounting side of business, sales, inventory control, and customer service. There are even vendors like Exact Globe and NetSuite that are specifically designed for small businesses.
- Cloud Apps – Cloud computing has become an increasingly popular option for businesses because of its safety, security, scalability, and convenience. While the term cloud computing can encompass numerous processes, cloud apps like Google Drive, Evernote and Dropbox are simple solutions for small businesses. They allow you to create and store documents, spreadsheets, slideshows, images, and other items with ease. Rather than backing them up on traditional hardware devices like disks and USB sticks, everything is securely saved in the cloud, where it can be accessed on a variety of devices from anywhere in the world with Internet access.
3. Train employees on efficient time management.
Keeping employees on track throughout daily operations is another way to keep down costs. Without efficient time management, team members can easily become sidetracked, and you wind up paying for manpower that isn’t getting results. That’s why it’s important to assign each employee appropriate tasks that match their ability. Having a good project manager to carefully monitor the progress of each project should help you get the maximum productivity from each team member. You may even want to use time tracking/management software like Replicon and Tenrox to make it easier.
4. Outsource projects globally.
This is another of the cost management techniques that’s become possible, in part, thanks to the Internet. If you have certain tasks that don’t require employees to work in-house, outsourcing projects to workers around the country or even the world can be a lifesaver. Not only can this save money, it gives you access to some of the brightest talent there is. Platforms like Skype and Google+ Hangouts offer face-to-face interaction to provide effective communication.
While small businesses don’t always have the deep pockets of larger businesses, it doesn’t mean they can’t thrive. Being smart and optimizing your business’s efficiency can quickly elevate you above competitors who use outdated techniques. By cutting your costs, you can drive larger profits while building a strong foundation for the future.
Functions of Cost & Management Accounting
Functions and objectives of cost and management accounting include the following:
- Planning
- Decision Making
- Monitoring & Control
- Accountability
Planning is an important function of management accounting which is most effectively performed by the preparation of budgets and forecasts.
Forecasting is the process of estimation of the expected financial performance and position of a business in the future. Common types of forecasts include cash flow forecast, projected profit and loss and balance sheet forecast. Forecasts assist in determining the likely change in the financial performance and position of a business when considered in the context of the various assumptions used in forming the projections. Forecasting is the starting point in determining the resource requirements of a business which are quantified into budgets.
Budgets quantify the financial targets to be achieved by the management of an organization. Budgeting process often begins with the preparation of a master budget which is then used as a basis for the preparation of departmental and operational budgets. Budgeting helps in the effective allocation of resources of an organization between competing needs (e.g. departments, products, etc) in order to achieve the financial goals of a business. Budgets and forecasts help businesses to deal with potential problems proactively and avoid foreseeable bottlenecks in business resources.
Management accounting facilitates the provision of financial information to management for decision making. Management accounting also involves the evaluation of alternative strategies and actions by the application of techniques and concepts such as relevant costing, cost-volume-profit analysis, limiting factor analysis, investment appraisal techniques and client / product profitability analysis.
Control process in management accounting system starts by defining standards against which performance may be measured such as standard costs and budgets. Actual results are measured and any variance between targets and results are analyzed and where necessary, corrective actions are taken. Management accounting plays a vital role in the monitoring and control of cost and efficiency of the routine processes and as well as one-off jobs and projects undertaken by an organization.
Management accounting lays great emphasis on accountability through effective performance measurement. By setting targets for strategic business units and as well as for departments, management accounting assists in the assignment of responsibility for the achievement of business targets by individual managers. Responsibility accounting is achieved by appraising the performance of managers responsible for their business units while giving due consideration for factors not within their control or influence
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