Cost overruns are dangerous as they demand funds allocated for other purposes and needs. To avoid them, managers must have a top-notch cost management strategy up their sleeve at all times. The good news is that our Cost Management agement presentation deck allows you to introduce your strategy for effective management of cost with ease and, therefore, provide your businesses with the freedom to make the right choices, remedy the shortcoming between strategy and execution and fuel growth.
Use this slide to list all cost determinants for the project. Although determinants vary from organization to organization, they depend on two main factors: The Quantities of Resources and Combinations and Techniques of Productions.
High costs most likely prevent your team from achieving goals, thus, identifying obvious and hidden causes for inefficient costs is crucial. Use this slide to discuss causes for high costs and introduce elimination solutions.
With this slide, introduce cost reduction potential and propose strategies for savings. These can include: bartering with other businesses, monetizing marketing methods, sponsoring your events and introducing four-day work week.
Cost management is the process of estimating, allocating and controlling the costs in a project, which enables an organization to forecast upcoming expenses and avoid exceeding the allocated budgets.
The most important element in cost management, says David Axson, managing director at Accenture Strategy, CFO & Enterprise Value "is to live and breathe a relentless customer focus. All too often cost reductions lead to service reductions, opening the door to disruptors who can deliver great service at the same or lower cost. Digital tools allow organizations to deliver better service at lower costs – it's no longer a trade-off of one for the other. Think about automatically checking into your hotel room, choosing your room and accessing your key through the app on your phone. For the hotel this lowers costs (no check in line, no plastic keys, etc.) while for the guest it delivers faster, more personalized service."
There are four major steps to the process:
- Resource planning – the process of discovering future resource requirements for an organization or a particular project. This requires the assessment and planning of the use of the labor, finances and other resources.
- Cost estimating – the process used to quantify, cost and price the resources required for an organization or a particular project. It requires the employment of tools that transform technical and programmatic data into finance and resource data.
- Cost budgeting – the process used for evaluating the estimated cost of resources into cost accounts and measuring cost performance against them.
- Cost control – the process used for measuring variances from the cost baseline and establishing effective correctional action to achieve minimum costs.
Boeing Commercial Airplane Group Wichita Division
The case study published by Massachusetts Institute of Technology examined the effects of employing Activity-Based Costing and Management Practices (ABCM) – an approach where activity-based cost (ABC) models provide economic information for management decision making, within the Aerospace Industry.
According to MIT, BCAG is the world's largest manufacturer of commercial airplanes, which comprises about 60% of Boeing's total revenues. The main focus of BCAG Wichita is the development of a lean, efficient design and production system supported by an effective cost management strategy in order to capture and maintain world-class aerospace manufacturing reputation.
The MIT researchers write: "One of the most attractive and counterintuitive characteristics of activity-based costing arises from the previously untapped sources of added value that it allows a company to discover. As the emphasis on costs shifts from labor to overhead, companies are changing their business strategies to capture these gains. Although overhead costs now dwarf labor costs as a percentage of overall expenditure, companies have not changed the methods they use to quantify costs."
And continue: "Advocates of ABCM believe that unless there is a change to a new way of identifying monetary output, companies will never know the true costs of production. At present, a majority of the companies that have adopted ABCM operate in the commercial sector. Traditionally, these companies have been perceived to be more exposed to economic variability, and thus must be able to adapt to changing market conditions in order to retain competitiveness.5 Although the aerospace industry has been slower to adopt activity-based costing methods, cycles of instability in the industry may lead to increasing interest in ABCM. The successes of the pilot projects at BCAG Wichita may illustrate the benefits of investigating different cost management strategies. BCAG Wichita hopes to move ABCM principles into other areas of the manufacturing process, and encompass an ever-increasing portion of the facility's operations."