RELEVANCE

OF
COST MANAGEMENT
IN
ORGANIZATION
SUCCESS
COST MANAGEMENT

What is Cost management ?

 Management and control of activities to help set enterprise

strategies and to determine an accurate product and
service cost, improve business processes, eliminate waste,
identify cost drivers, and plan operations.
 To control costs ---> save money ---> higher profits --->
expansion ---> more jobs ---> higher profits --->repeat,
and repeat, and repeat, and.....
PURPOSE

Why Cost Management ?

To ensure adequate supply of funds from the right source

at the right cost and at the right time to the firm to meet its
funding needs. In this connection a cost benefit analysis of
various alternative sources must be made before acquiring
funds from any particular source. Financial activities have
undergone tremendous changes, the cost management,
therefore gained much importance over the time.
RELEVANCE OF COST MANAGEMENT

 Determinant of Business Success

Sound cost management is the index of the success of an
enterprise, its existence and growth. Cost management
makes possible the use of available resources in the form
of men, materials and machines more effectively. Thus, it
helps in preparation of plans for development &
expansion and their successful executions.
Continued..
 
 Focal point of Decision making
It provides scientific analysis of facts and figures. This
helps on evaluating the profitability of the project in the
given circumstances so that a proper decision may be
taken to minimize the risk involved in the project.
Continued..
 Measurement of performance
The performance of the firm can be measured by its
financial results i.e. by the size of its earnings. Risk and
profitability are two major factors which jointly determine
the value of the firm. Financial decisions which increase
the risk will reduce the value of the firm, and on the other
hand, financial decision which increases the profitability
will enhance the value of the firm. Therefore, risk and
profitability are two essential ingredients of a business
concern as observed, financial decision affect the size of
earnings stream or profitability and the riskiness of the
firm. Policy decision affects risk and profitability.
Continued..
 Advisory Role
It plays a very important role in the success of a business
organization by advising top management. It represents
important facts and figures regarding financial position
and performance of various segments of the firm to
evaluate the progress of the firm and to amend suitably the
principles of the firm.
Continued..
 Optimal Utilization of Resources
Sound cost management emphasizes the optimum
utilization of resources of the enterprise. In fact, the
failure of a business enterprise is not always the result of
inadequate finance but it is the result of defective
management of funds. Effective cost management plays
the important role in the maximum exploitation and
utilization of the enterprise resources. Effective utilization
of financial resources is of great significance. It gives
maximum returns by increasing the productivity of capital
funds.
RELEVANCE OF COST MANAGEMENT
IN ORGANIZATION SUCCESS
Management Workers Society
Helps to improve efficiency Better reward Quality products at cheaper
rates

Action against unprofitable Job Security Infuses confidence in the

product or service public

Facilitates managerial Chances for Promotion Employment opportunities

decision making

System of foresights Economic growth

Create cost consciousness Improves the standard of

living
CONCLUSION

“Learn the language of accounting. It’s the language of

business, and if you don’t learn it, some little bean counter
wearing a green eyeshade will blow your grand marketing
or operations idea right out of the water”