Cost control is a very important aspect of building a business’s finances and also increasing its profitability. Cost control is a practice used by finance professionals that analyses a business’s overall expenses and reduces project costs to increase profit. Understanding cost control methods can help you maintain a budget for your project and increase project profitability. In other words, cost control is the process of defining and minimizing business expenses to boost profits. As an example, a company can obtain bids from different vendors that provide the same product or service and decide on the lowest cost. Typically, a company hires finance professionals to monitor their cost performance, plan a budget for each project, and change projects that can increase a business’s financial performance. Financial professionals also develop, maintain, and organize a project’s budget from start to finish, to ensure that the budget is being followed closely by employees.
THE IMPORTANCE OF COST CONTROL :
Cost control enables a business to cut down its expenses and hence generate more profit, the ultimate goal of any commercial venture. Here are some of the reasons why cost controlling is essential for business –
• Budget helps to stay on track – Cost control methods often involve setting a strict budget. If the budget demands for a project to be completed by a certain time, employees may feel more compelled to complete the project by meeting the budget’s deadline.
• Keeps the project cost from growing – As a project progresses, its cost keeps escalating. Using the cost control method can help to keep that in check. Project members can consult a financial expert in this regard.
• Keeps the profitability high – Proper cost control methods allow the revenue earned from the project to be higher than the cost of the project. This keeps the profitability high and increases a company’s finance.
FACTORS OF COST CONTROL :
There are several factors, a proper rein on which can ensure cost control.
• Cost of labor – The sum of wages paid to employees working on a project, including employee benefits and taxes, is the cost of labor. If labor costs can be reduced, profit will increase in a business.
• Cost of materials – The total cost of all supplies and equipment that are required for a project is the cost of materials. A reduction in material cost can reduce the overall expenses and hence reduce the profit.
• The cost variance – Cost variance refers to the differences in price between the actual cost of the project and the budgeted cost.
• Return on investment – Return on investment also known as ROI refers to how profitable a project is, compared to how much money you invested in a project.
COST CONTROL METHOD :
There are several costs controls methods that allow a company to maintain and track its overall costs. Some of them include –
• Planning the budget properly – Setting aside enough time to develop an accurate budget for new projects is important because budgeting helps eliminate costs, keep finances organized and ensure that the cost variance is relatively low. It’s essential to leave sufficient space in the budget for any unexpected expenses.
• Monitoring all expenses using checkpoints – Businesses often have checkpoints that are analyzed periodically throughout a project. Monitoring all expenses pertaining to a project is a common costs controls method followed by businesses, to ensure that the budget is being strictly followed.
• Having time management – Time management is a cost controls method, that can keep the expenses of a project low, by meeting the project deadlines.