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Cost Management

 



What is Cost Management ?  

Cost management is the process of determining and controlling a company's budget. Cost management is a sort of management accounting that assists a business in forecasting forthcoming expenses in order to stay within budget.



Cost Management is broken down into four steps.




1: Resource planning

2: Cost estimating

3: Cost budgeting

4: Cost control



1: Resource planning

 

The practice of determining future resource requirements for an organization or a scope of work is known as resource planning. This entails assessing and planning how physical, human, financial, and informational resources will be used to perform work activities and tasks. The majority of activities entail the use of humans to complete tasks. Some activities necessitate the use of materials and consumables. Other duties include producing an asset based primarily on data inputs (e.g., engineering or software design). People usually rely on tools such as equipment to assist them. Automated tools may be able to do tasks with little or no human intervention in some instances.


2: Cost estimating

 

The predicted process of quantifying, costing, and pricing the resources required by the scope of an investment option, activity, or project is known as cost estimating. It entails the use of strategies to transform quantifiable technical and programmatic data about an asset or project into finance and resource data. Estimating outputs are largely used as inputs into corporate planning, cost analysis, and decision-making processes, as well as project cost and schedule control procedures.


3: Cost budgeting

 

Budgeting is a sub-process of estimating that involves assigning expected resource costs to cost accounts against which cost performance will be reviewed and evaluated. This is the starting point for cost management. The cost accounting procedure must be supported by the cost accounts used from the chart of accounts. Budgets are frequently time-phased to meet deadlines or to manage budget and cash flow constraints.


4: Cost control

 

 

The goal of cost control is to measure deviations from the cost baseline and take effective corrective action to keep expenses to a minimum. Procedures are used to track spending and performance against a project's progress. All changes to the cost baseline must be documented, and the predicted ultimate total costs must be forecasted on a regular basis. When real cost data becomes available, explaining what is generating the cost deviation from the baseline is a crucial part of cost control. Corrective action may be required as a result of this analysis to avoid cost overruns.

 


References

WhatIs.com. 2021. What is cost management? A definition from WhatIs.com. [online] Available at: <https://whatis.techtarget.com/definition/cost-management> [Accessed 9 December 2021].

steps, C., 2021. Cost Management explained in 4 steps. [online] Costmanagement.eu. Available at: <https://www.costmanagement.eu/blog-article/cost-management-explained-in-4-steps> [Accessed 10 December 2021].



Comments

  1. Anuruddha ShanakaDecember 12, 2021 at 9:11 PM

    What is the difference between Cost Cutting and Cost Management ?

    ReplyDelete
    Replies
    1. Duminda GunathilakeDecember 13, 2021 at 4:01 PM

      Cost Control is a technique which provides the necessary information to the management that actual costs are aligned with the budgeted costs or not. Conversely, Cost Reduction is a technique used to save the unit cost of the product without compromising its quality.

      Delete
  2. Harshani mannapperumeDecember 13, 2021 at 3:41 PM

    This comment has been removed by the author.

    ReplyDelete
  3. Saminda GoonawardanaDecember 14, 2021 at 8:24 PM

    is there any different between cost and expenses

    ReplyDelete
  4. Chinthaka KiulgallaDecember 15, 2021 at 12:28 AM

    Useful facts. thank you for posting valuable information

    ReplyDelete
  5. Kaushali HerathDecember 16, 2021 at 9:53 PM

    True. In a case study by Huang and Zhang (2013), they mentioned that the main purpose of the cost management system is to maximise profits.

    In order to maximise profits, the company has to face and succeed competitions and to develop themselves continually.
    In a nutshell, the two primary objectives to provide a cost management system are global competition and continuous improvement

    ReplyDelete
  6. Lasath KarunanayakeDecember 16, 2021 at 10:59 PM

    Interesting facts
    Thanks for sharing

    ReplyDelete
  7. H.A.SampathDecember 18, 2021 at 9:49 AM

    In a business organization, the key objective is profitability. Without managing cost, unable to maximize the profit. Budget is the plan and it shows where we can go, where we are in.

    ReplyDelete
  8. Prasadi Purnima DilrukshiDecember 18, 2021 at 12:17 PM

    Cost controlling is most important to organization maximize the organization's profit.Very important post.

    ReplyDelete
  9. DhammikaDecember 18, 2021 at 5:52 PM

    Very good post about cost management. Thank for you sharing valuable information.

    ReplyDelete
  10. Hasitha WanigarathneDecember 18, 2021 at 11:35 PM

    Cost management plays vital role in modern era

    ReplyDelete
  11. Rakitha RanaweeraDecember 19, 2021 at 11:06 PM

    Nice explanations..

    ReplyDelete

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