Last trends in development of cost management systems

Cost management involves a range of measures aimed at reducing and controlling costs. The process of creating a cost management system in an enterprise we propose to break into the following stages:

• •    Linking cost management systems and budget management.

• •    Identify promising ways to reduce costs.

• •    Develop a plan to reduce costs.

• •    Consider each of these stages in more detail.

The experience of foreign companies shows that cost management is effective only when it is tightly linked with the budgeting system. The introduction of a budgeting system at an enterprise can be regarded as the first step towards cost management. When developing a budget, an enterprise limits the amount of planned costs and thereby manages them. The company's budget can be compiled using cost standards (rationing), as well as by tightly limiting the costs of business units and setting limits by the company's management (limiting). In our opinion, the best is a combination of these methods. Limits are applied to those items of expenses for which no norms are established (commercial and general expenses, etc.). At the same time, enterprises using only rationing or only limiting successfully operate.

Enterprise cost planning is one of the most effective tools for managing them, but, unfortunately, well forgotten. For the progressive development of the enterprise plans must be real, but tough.

In Norilsk Nickel, cost management begins at the stage of submission of applications by divisions for the allocation of necessary funds for the tasks assigned to them. “One of the effective tools is commercial expertise. Professionals who are familiar with the situation on the market analyze the validity of the application in terms of the conformity of its value to the goods (services) being purchased.

A prerequisite for linking budgeting and cost management systems is the existence of a single governing body - the budget committee. For cost management, it is most expedient to form a matrix structure of the budget committee, when both the head of the budget center and the head of the functional center control each cost item. The chairman of the budget committee is the general director of the company. This allows the company’s management to participate in cost management and, equally important, to identify those responsible for the use of resources.

The functional center is considered to be a group of budget items, united by a functional basis. The head of the functional center is a company manager responsible for a specific area of management throughout the enterprise, for example, the personnel director is responsible for managing personnel throughout the company. Heads of budget centers (financial responsibility centers) are, as a rule, heads of departments (for example, the head of the sales department). Consequently, both the head of the sales department and the director of personnel control the costs of the item “Salaries” of sales professionals.

Cost management begins with the first budget of the company. If this option does not suit the management of the company or owners, then the planned budget items, including costly ones, are adjusted.

To analyze the expenditure side of the budget, we propose to divide all cost items of any department into three groups:

• •    costs that are not subject to revision due to strict obligations on the part of the enterprise (wages, contracts concluded);

• •    costs associated with obligations that may be revised (there is a possibility of termination of contracts, but penalties may follow);

• •    costs that can be rejected or deferred for other periods without significant damage to the enterprise.

Based on this classification, cost reduction occurs by phasing out groups of costs: first, costs from the third group are reduced, then from the second group and only as a last resort from the first group. Note that the revision of the costs of the first group will lead to the need for structural changes in the state, wages.

The heads of departments, as a rule, are assigned the task of developing a set of measures necessary to reduce costs to the level required by management. In other words, they must answer the question: what needs to be done so that the costs do not exceed a given amount. In most cases it is possible to optimize costs by making organizational changes in the company. However, at times, to reduce costs, more drastic measures may be required: changing equipment to more productive ones, introducing energy-saving technologies.

To identify costs that can be reduced, we offer use the following types of analysis (or a combination of them) cost structure analysis; comparative analysis; cost object analysis.

In order to analyze the cost structure of the enterprise, apply vertical, horizontal and trend analysis. Using a vertical analysis, the cost structure is determined: the proportion of each item of expenditure is calculated in the total amount of expenses of the enterprise and the most significant items are identified.

According to the results of the vertical analysis, cost charts are drawn up indicating the share of each item in the total costs of the company.

The horizontal analysis is based on the comparison of each position on the cost items of the reporting with the previous period (month, quarter, year), that is, the deviations of indicators of the reporting or planned period from the previous one are determined.

After conducting a vertical and horizontal analysis, trends in changes in cost items should be analyzed, that is, a trend analysis should be carried out. It allows you to determine the possible values of indicators in the future, that is, to predict the values of various indicators (revenue, costs, etc.) while maintaining the current dynamics.

Comparative analysis is based on a comparison of the most significant indicators of the company with similar indicators of competitors or with industry average indicators. It allows you to draw conclusions about the competitiveness of the enterprise, as well as the availability of reserves to reduce costs. Note that in market conditions it is quite difficult to obtain data on the activities of competitors, which are necessary for carrying out a comparative analysis. Analysis of the cost structure and comparative analysis allow us to determine the direction of cost optimization. For making specific management decisions, the method of identifying and analyzing cost carriers is used.