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  Cost Control versus Cost Reduction

Cost Control versus Cost Reduction

Controlling the costs, already pre-determined on the basis of assumption of reasonable level of efficiency taking the past, present and future into account is the main focus of cost control. The actual are tried to be brought within the ambit of targets. Cost accounting is primarily concerned with controlling the costs so that losses and wastages are eliminated or at least minimised to the extent possible. While cost reduction is entirely a matter which goes much beyond cost control and hence it is not synonymous with cost control at all, now cost accounting aims at cost reduction also, as well cost control. Cost reduction is a process that actually starts from where cost control ends. Management has to ponder over in terms of bringing down costs to levels lower rather than the targeted ones so like to face fierce competition and present in this very competitive business environment. How, with no sacrificing quality or compromising with the utility of the services and products the cost can be permanently cut down, is the real aim of cost reduction. So, new ways and means are needed to be desired, researches are to be performed and management has to be innovative.

The major differences among cost control and cost reduction can be explained within several sub-headings as under, however both underline what costs ought to be:

Basis

Cost Control

Cost Reduction

1.      Objectives

 

 

 

 

2.       Approach

 

 

 


3.      Nature.

 

 

 

 

 4.      Emphasis

 

 

 

 

5.      Assumptions

Cost control intends at maintaining the cost in accordance with the established targets or standards.

 


 

Cost control lacks dynamism because it aims to attain lowest possible costs within existing circumstances.

 

 

Cost control is a preventative function, within it; costs are optimised before they are incurred.

 

 

 

In case of cost control, the emphasis is on the past. It aims at keeping the costs within the limits already set. In case the costs reach the target level, the objective of cost control is achieved.

 

Cost control assumes the existence of specific standards or norms which are not challenged.

Cost Reduction is directed to explore the possibilities of enhancing the targets or standards themselves. It challenges all standards and makes continuous efforts to better them.

 

Cost reduction is a continuous process and recognises no conditions like permanent. It includes a continuous process of analysis and tries to find out new means to get reduction in costs.

 

Cost reduction is a corrective function. It operates even while efficient cost control system exists. It pre-supposes that there is always a room for reduction in the achieved costs.

 

In case of cost reduction, the emphasis is on the present and the future. The emphasis is not on what has been the cost but what could be the possible improvement in the costs. Thus, there is no end to cost reduction.

 

Cost reduction assumes the existence of concealed potential savings in the standards or norms which are therefore subject to constant challenge or improvement.

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