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Cost Management: Meaning, Techniques & Advantages

November 25, 2015
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What is Cost?

Cost is defined as the monetary valuation of effort, material, resources, time consumed, risk and opportunity forgone in production / delivery of a good or service. It is simply put as the amount that has to be paid or given up for something to be acquired.

What is cost management?

It is defined as the process of planning and controlling the budget of the business. It helps in predicting the expenses of the business so that one can avoid going over budget, thereby being an integral part of business management.

cost management

Cost management involves different cost accounting methods that have the goal of improving business cost efficiency by reducing costs or atleast having measures in place to restrict the growth of costs.

Cost can be managed by

  • Cost estimation
  • Cost budgeting and
  • Cost Control

Cost management system helps in identifying, collecting, classifying and collating information that can be used by managers in planning, controlling and taking decisions to keep costs in the desirable limits.

Why adopt cost management?

Before any project is taken up, it is appropriate to define the objectives to avoid any kind of cost over-runs. They also help in keeping away over or underestimation of costs. A well defined project helps in facilitating appropriate management of the costs, making the project a profitable one for the undertaker. Through cost management, unexpected costs can also be appropriately dealt with as and when they occur as the forecast would reflect it.

Factors affecting cost management

  • Growth in information technology
  • Global and overall domestic competition
  • Growth of service and manufacturing sectors

Cost management techniques

Managing a business has containing cost of utmost importance. Below are mentioned some of the techniques through which the overall cost of the business can be controlled and maintained within the required limits.

cost management  techniques
Capitalize on technology

This is one of the methods that help in streamlining the business. The latest of technology helps in getting quality of higher standards, less time consumption with higher productivity and keeps the employee count within the desirable range. All of this very strongly reflects in the overall cost of the business.

Time management

The one who owns the business definitely knows the value of time for his / her business. However, it is important to pass down the relevance across the hierarchy of business to view the desired results. It is very essential to make the employees understand the value of time and how to be efficient to do more work in the same time span. This is one of the methods that will help increase the productivity without adding to the labor cost.

Inventory management

One of the major cost as well as ways of generating revenues is through inventories. First and foremost one needs to chalk out the inventory requirements, the quantity check that needs to be stored, vendor costs etc as all of this helps in knowing the requirements of the business and helps avoid stocking excess inventory and deploy the capital elsewhere rather than tying up in the inventory stocks.


Outsourcing is one way that helps take employees on third party roles especially when it is for one time projects. This saves the employer from taking the cost onto his books. This is definitely done keeping in mind that the outsourcing partners are of the standards that do not hamper the quality of services to the customers of the business.  Besides the employees, certain projects also can be outsourced, which helps in saving the additional employee costs onboard as well as get access to outside talent and technology, helping in optimizing the resources.

Updated market sense

It is very important to be updated with the trends in the markets as it is game of survival of the fittest. One has to be constantly in touch with the vendors and see that renewal of the contracts keep happening with the trend in prices. This will help in negotiating for the best prices available rather than dragging on the set prices of long term contracts.

Control of headcount

The second most important cost to a business is the employee cost. Although we take employees as assets or the backbone of the business, one needs to keep in mind that they also have cost associated with them. Besides the regular pays and salaries, workplace, licenses, softwares are the additional costs added per employee. That is why, it is essential that the manager knows how to reduce the employee costs, either by taking less number of people onboard, or by taking more of low cost employees rather than few high costs ones.

Advantages of cost management

advantages  of cost management
  • It helps in controlling the project specific cost, in turn also the overall business cost.
  • One can predict the future expenses and costs and accordingly work towards the expected revenues.
  • Predefined costs can be maintained as records for the business.
  • It helps in taking those actions that are necessary to assure that the resources and business operations aim at attaining the chalked objectives and goals.
  • It helps in analysing the long term trends of the business.
  • The actual cost incurred can be compared to the budgeted to see if any component of the business is spending more than expected.
  • It helps in analysing the business positioning in terms of making an acquisition factoring the cost component involved.


Cost management is indeed one of the essential requisites for the success of any project or business for that matter. When one knows the scope for the cost that the business can bear, it becomes much easier to set the goals and accordingly work towards it.


About the Author

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