20 April 2011
Cost reduction is the achievement of real and permanent in the unit cost of goods manufactured or services rendered without impairing their suitable for the use intended or diminution in the quality of the product. It use the techniques like value analysis, work study, standardization, simplification etc. It is a continuous process of critical cost examination, analysis and challenges of established standards. Each aspect of the business namely products, processes, methods, procedures is critically examined and reviewed with a view to improving the efficiency and effectiveness so that cost are reduced. It presumes the existence of concealed potential savings in norms or standards. It is a corrective action.
Cost control is a broader concept. It aims at optimal utilization of resources to enhance the operating income of the firm. It does not consider product attributes as given. It does not focus on cost independent of revenue. Cost management/control system establishes linkage between cost and revenues. It relates costs with product to have an insight into how various attributes generates revenue and create demand on resources. It provides information to manage/control product attributes to optimize resource utilization.
Traditional cost reduction systems focus on products, while cost management/control systems focus on products, markets, and customers.
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