A thumb rule in any profit seeking business is – “lower the cost, higher the profit”.
Therefore businesses strive on an on-going basis to control costs.
This can be achieved by reducing the costs which are high and by avoiding unnecessary costs.
In spite of brilliant minds and tireless hard work sometimes additional costs creep in or existing high costs continue to affect profits.
Cost control can be achieved by the following methods
Understanding Costs and Cost Control
Everybody working in a company can contribute to cost control.
It is not a priority of the top management or the finance department.
It is not related to rocket science or complicated theories in finance.
The following examples would make the above point clear.
Let us consider the simple task of choosing a font and font size for printing.
# “Serif” fonts consume less ink compared to “Sans-Serif” fonts, resulting in savings in cost per page.
Ryman Eco, Ecofont Sans, Courier and Century Gothic are some of the cost reducing Serif fonts.
In addition to this, it must be noted that, even a reduction in just one size in a font results in a considerable cost saving related to printing ink and paper consumption.
University of Wisconsin Green Bay saved 30% on ink when they switched from 11pt Arial to 10pt Century Gothic.
#switching off the electrical appliances (lights, fans, air-conditioners etc.,) at the appropriate time will save costs towards electricity bills.
Following Best Practices
Instead of reinventing the wheel we can follow the best practices followed by other companies.
Within the same company if one department or one branch is more profitable, its practices can be understood and applied by others. If a new company wants to manufacture a mobile handset it can make use of the technology which is available in the industry. It need not invest money in understanding the fundamentals of that technology.
Railway projects in India were known for costly delays, both, exceeding budgets and project completion dates.
Mr E. Sreedharan, the “Metro Man”, was known for completing the metro rail projects within the allotted budget and before the planned completion date. Public private partnership (PPP) companies can adopt the best practices practised by
Mr E. Sridharan, when he was heading the different metro rail projects in India.
Habitual Wrong Beliefs
Let us have a look at some of the old, wrong beliefs.
Air travel has to be very costly and a common man cannot afford it.
Budget airlines have cut costs by excluding the cost of inflight food from the total cost of the ticket.
Therefore, only, passengers who have to eat something in the flight have to spend on it and the others need not.
A four wheeler in India has to be costly.
Now all of us know that economy air travel is a reality and we have cars like “Nano” which a common man in India can afford.
Resistance to Change
Inertia or resistance to change is a very common corporate phenomenon.
Continuing to follow old practices, for the sake of convenience, in spite of higher costs, is not advisable.
If there is a cost-saving, new way of doing a thing, many will object to it simply because it is new.
For example, there was a lot of resistance towards introduction of computerisation and automation in many parts of the world.
Now we all know that through the introduction of them we can reduce costs.
Many businesses related to movie videos, video rentals etc. suffered huge losses because they did not adapt themselves to the new technology of CDS and Computers.
Many businesses related to music, wrist watches etc. were affected due to the arrival of the versatile modern mobile phones. They reduced the importance and necessity of having gadgets like music speakers, CDs, wrist watches etc.
Let us embrace cost saving modern technology and save costs and increase profits.