Cost Management

What is Cost Management?

Cost management is a
management planning and
control system with primary
objective of producing quality
goods and services at the lowest
possible cost.

Cost
Management
Material Machine
Men
Minutes Methods
Cost management is highly
multi-disciplinary profession
and deals with all aspects of
cost pertaining to human as
well as other resources like
capital, assets and above all
the management of time.

Therefore it can be said that
cost management is oriented
towards innovative and better
management of costs of Men,
Material, Machine, Methods
(Techniques) and minutes
(Time).


Traditional Cost Management New Cost Management
Related to domestic market Global market
Cost ascertainment and control Total cost management
Quality control Total quality management
Conventional Management Activity based management
Competitive analysis Bench marking
Value analysis Total customer satisfaction
In modern business environment Cost Management includes:
Activity Based Costing

Target Costing

Total Quality Management

Bench Marking

Business Process Re-engineering

Just-in-Time Inventory
Total Quality Management
Total quality management (TQM) consists of organization-
wide efforts to install and make permanent a climate in which
an organization continuously improves its ability to deliver
high-quality products and services to customers.

TQM is the integration of all functions and processes within
an organization in order to achieve continuous improvement
of the quality of goods and services. The ultimate goal is
customer satisfaction.

Finally it aims at zero defect production.

Benefits of TQM
Greater customer loyalty
Market share improvement
Higher stock prices
Reduced service calls
Higher prices
Greater productivity

Bench Marking
Benchmarking is the process of comparing one's
business processes and performance to industry
bests or best practices from other industries.

Dimensions typically measured are quality, time and
cost.

In the process of best practice benchmarking,
management identifies the best firms in their
industry, or in another industry where similar
processes exist, and compares the results and
processes of those studied to one's own results and
processes.

In this way, they learn how well the targets perform
and, more importantly, the business processes that
explain why these firms are successful.
Business Process Re-engineering
Business process reengineering (BPR) is the
analysis and redesign of workflow within
and between enterprises.

This suggests that sometimes radical
redesign and reorganization of an
enterprise (wiping the slate clean) was
necessary to lower costs and increase
quality of service and that information
technology was the key enabler for that
radical change.
Seven principles of reengineering to streamline the work process and
thereby achieve significant levels of improvement in quality, time
management, and cost:

1. Organize around outcomes, not tasks.

2. Identify all the processes in an organization and prioritize them in order of
redesign urgency.

3. Integrate information processing work into the real work that produces the
information.

4. Treat geographically dispersed resources as though they were centralized.

5. Link parallel activities in the workflow instead of just integrating their results.

6. Put the decision point where the work is performed, and build control into the
process.

7. Capture information once and at the source.
Just-in-Time Inventory
A philosophy that seeks to eliminate all
types of waste, including carrying
excessive levels of inventory and long
lead times.

Takes its name from the idea of
replenishing material buffers just when
they are needed and not before or after.

Developed by Toyota Motor Company in
mid-1970s.

Best applied to a production system,
such as automobile assembly, that
would be considered repetitive.

Traditional Vs. JIT system
Traditional
used to buffer
operations
large WIP buffers

JIT
inventory is seen as an
evil
small WIP buffers
Strategic Cost Management Cycle