The process of increasing the profits of an organization by apply cost reduction is always based on the concept of an organized and planned model.
As such, unless there is evidence of adequate records being maintained by way of proper accounting system, there can possibly be no basis of ascertaining and analyzing organizations costs.
Business cost reduction
The key purpose of carrying any business activity is to make profits by all means. This paper gives an outline of the importance of minimizing cost in an organization as well as the alternative means that can be applied in an organization to reduce the operating costs while maximizing on the profits. The paper starts with an introduction of why cutting business cost is important, this is then followed by stating some of the methods that can be applied in an organization to reduce the operating cost of the business. Finally, the paper concludes by summing up the strategies to be applied and why they are important in any business setting.
The process of increasing the profits of an organization by apply cost reduction is always based on the concept of an organized and planned model. As such, unless there is evidence of adequate records being maintained by way of proper accounting system, there can possibly be no basis of ascertaining and analyzing organizations costs. This paper will discuss the several ways in which cost reduction can be done in an organization as well as the alternatives methods that can be employed in improving the profits of an organization.
Cost reduction in an organization
The reduction of cost does not really mean the act of attempting to cut any of the expenses incurred unmethodically. The person managing the organization must be in a position to understand the true nature of expenses and how they inter-relate with the organizations sales (Jin, 2001). The relationship of the expenses with the organization inventories, cost of goods sold, net and gross profits need also to be looked at when cutting costs in an organization. Again, cost reduction does not really translate to the reduction of specific expenses in an organization (Jin, 2001).
Ways of business costs reduction
There are various methods that can be applied in reducing the business costs in any business setting. Some of the strategies that can be applied include, reduction of the employees salaries, track spending that will make the organization note areas with faults in spending (Boulianne, 2005). Again, focusing on only the profitable venture of the business and putting less effort to those activities that have no impact to the organization is also another way of reducing business costs in an organization (Boulianne, 2005).
Profit maximization in an organization can be achieved by the application of the expense dollar (Haynes, 2007). Some of the methods that this step can be carried out include increasing the mean sale per customer, by effectively utilizing display space leading to an increase in sales volume per square foot of the display space, obtaining a bigger return for the company’s advertising as well as promotion dollar, and by improving the organizations internal methods and procedures (Boulianne, 2005).
To conclude, costs reduction is important in an organization as it leads to automatic profits being realized in the organization. It is imperative for any organization to device means of reducing the operating costs in its premises by all means. As discussed, cost reduction does not just involve the reduction or even elimination of the expenses that are incurred in the activities of an organization.
Boulianne, E. (2005). The impact of procurement card usage on cost reduction, management control, and the managerial audit function. Managerial Auditing Journal. doi:10.1108/02686900510606083
Haynes, B. P. (2007). Office productivity: a shift from cost reduction to human contribution. Facilities. doi:10.1108/02632770710822562
Jin, J. Y. (2001). Strategic Cost Reduction and Cost Revelation. German Economic Review. doi:10.1111/1468-0475.00029