Analysis of Cost Management
Costs are something that organizations typically need to understand and manage in order to run their businesses effectively. Good management of costs involves three distinct processes: measurement, analysis and control.
Measurement: It is the process of identifying and quantifying the various cost elements. This process can involve the use of a variety of techniques such as budgeting, activity-based costing (ABC), and cost-benefit analysis. Budgeting involves the allocation of resources and the identification of activities and their associated costs. ABC helps to identify costs associated with processes and services; it is frequently used to assign indirect costs, such as overhead or infrastructure costs, to products or services. Cost-benefit analysis is used to weigh the costs associated with alternatives and make informed decisions on which option offers the greatest value.
Analysis: This process involves comparing the measured cost to the actual costs for each activity. It also helps to identify opportunities for cost reduction, such as through process improvements or streamlining of activities. Through analysis, cost drivers can be identified; this helps to identify the costs related to individual actions and aids in reducing their impact.
Control: Control is the process of setting targets and implementing measures to achieve them. It can involve the establishment of cost budgets and targets, as well as delegation of authority and monitoring of costs. Control can also involve setting up of payment controls, benchmarking and other methods to ensure that the costs stay within the agreed range.
In conclusion, cost management is an important part of running a business. Effective measurement, analysis and control of costs can lead to reduced costs and increased profits. By monitoring and controlling costs, organizations can ensure that they are always operating in a cost-effective manner, in line with their strategic objectives and goals.
