Cost control

Cost control

Cost control essentially involves the setting of targets for cost centre managers and then monitoring performance against those targets. This is a key aspect of performance management.

Crowningshield and Gorman

Two management accounting authors, Crowningshield and Gorman, have identified six requirements of such a system.

(1)Effective delegation of authority and assignment of responsibility for costs.

This requires proper delegation of authority with clear cut accountability, with terms of reference and limits of responsibility clearly defined and agreed by all parties concerned.

(2)An agreed plan that sets up objectives and goals to be achieved.

In the context of cost savings, this cannot be reiterated often enough. Without such clearly defined and agreed goals, management is working in the dark, having no benchmark by which to measure whether or not it is achieving its desired activity levels.

(3)Motivation to encourage individuals to reach the goals established and agreed. 

Cost reduction, like anything else within an organisation, is an exercise requiring the agreement of the involved parties for its ultimate success. Agreement implies participation, and these days, this may well mean interdisciplinary participation, with each function of the business making an effective contribution. The goals or target costs must be realistic and reasonably attainable.

Ideally, they must optimise that fine balance between maximising managerial potential without making management despondent, and the easily reached target that causes complacency.

(4)Timely reporting.

This is an essential prerequisite of control and certainly of any cost reduction exercise. However, the resultant reports must provide detailed and instructive information on the implications of the alternative options. The alternative suggestions must be clearly presented with the cost savings and profit gains highlighted.

(5)The recommendations and action must follow.

(6) An effective system

More importantly there must be an effective system of follow-up to ensure that the corrective measures are being effectively implemented.

Created at 6/28/2012 3:57 PM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London
Last modified at 11/14/2012 10:47 AM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London

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