Mak effective cost controls in challenging economic conditions ace final
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1 Workshop conducted by: Workshop conducted by: Masoud Ali Khan, FCMA Masoud Ali Khan, FCMA December 14, 2010 December 14, 2010 Organize by: Organize by:
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Presentation developed and made at a workshop for Senior Executives. ACE Consultants were the logistics partners for the workshop.
Transcript of Mak effective cost controls in challenging economic conditions ace final
1
Workshop conducted by:Workshop conducted by:
Masoud Ali Khan, FCMAMasoud Ali Khan, FCMADecember 14, 2010December 14, 2010
Organize by:Organize by:
7:31 O Children of Adam! wear your beautiful apparel at every time and place of prayer: eat and drink: But waste not by excess, for Allah loveth not the wasters.
(Surah Al A’raf – The Heights).
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Norms
Participation
Adding ideas
Listening
No personal attacks
Timeliness - “be here now!”
Fun
Cell phones off or on silent mode
“Thank you for not smoking”
Participants’ Introduction & Expectations
Please share with us your:
Name
Organization
Functional tile
Hadith-e-Rasool SAW
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Hazrat Abu Hurayrah RAA narrated that the Prophet SAW said:
“If a people arise from the place where they were sitting without remembering Allah, then they have arisen from there like a dead ass. On the day of resurrection, this meeting will be cause of regret for them.” (Abu Daúd).
Today’s CoverageSession I (9 am to 11 am)
Economic ConditionsBusiness GoalsConcept & Types of Costs
Tea / Networking (11 am to 11.30 am)
Session II (11.30 am to 1 pm)OPEX & CAPEXInventory ManagementBudgeting & Standard Costs
Zohar Prayers & Lunch (1 pm to 2 pm)
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Today’s CoverageSession III (2 pm to 3.30 pm)
Re-engineering of Processes (BPR)Continuous Process Improvement (CPI)Quality Management (QM)Productivity Campaigns / Cost Consciousness
Tea / Networking (3.30 pm to 3.45 pm)
Session IV (3.45 pm to 5 pm)Effective Time ManagementPerformance Reward SystemsEffective Feedback Mechanism Action Plan
Conclusion & Asar Prayers (5 pm)
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Economic ConditionsEconomic conditions specially the Macro-
economic factors impact Business.
The recent Global Economic Crisis lead to the financial crunch.
Loss of Revenues & reduced Consumer buying powers due to increased Unemployment .
Survival of Business – a great Challenge.8
Business Goals
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Optimum Profitability – Primary Goal.Best possible Market Share.Sound Financial Position.Reputation & Image.Satisfied / Loyal Customers.Satisfied & Motivated Human Resources.Contribution to the Government.Contribution to the Society.
Drivers of Profitability
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Revenue / Income.PriceVolume
Costs / Expenses VariableFixed
Concept of Costs
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The term ‘cost’ means the amount of expenses [actual or notional] incurred on or attributable to specified thing or activity.
Total cost (TC) is how much money is required to operate at some particular output level. Total cost equals fixed cost plus variable costs (TC = FC + VC).
Types of Costs
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Fixed Costs VS Variable CostsDirect VS Indirect CostsMarginal Cost / Incremental CostPrime CostsConversion CostsOverheadsOpportunity Cost
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Tea / Networking Break
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OPEX & CAPEX
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An operating expense / expenditure, operational expense / expenditure or OPEX is an ongoing cost for running a product, business, or system.
A capital expenditure (CAPEX), is the cost of developing or providing non-consumable parts for the product or system.
Inventory Management
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Inventory management is primarily about specifying the size and placement of stocked goods.
Inventory is one of the key items of the Working Capital in the Manufacturing / Trading sector .
Proper Inventory management ensures control over:Financial CostsCost of ObsolescenceHolding / Carrying costsOpportunity Cost
Budgeting
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A Budget is a list of all planned expenses and revenues. It is a plan for saving and spending.
Cost / Expenses Budgets help controlling these by monitoring the Actual VS Budget on regular basis.
Budgets help create a Responsible Culture.Zero-Based Budgets play a key role in
rationalizing and controlling Expenses and improving the Bottom-line.
Realistic Assumptions are extremely important.
Standard Costs
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It is a system of cost accounting which is designed to find out how much should be the cost of a product under the existing conditions.
The actual cost can be ascertained only when production is undertaken.
The predetermined / Standard cost is compared to the actual cost and a variance between the two enables the management to take necessary corrective measures.
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Zohar Prayers / Lunch
Re-engineering of Processes – BPR
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Processes involve Costs – HR, Systems & Space..
Some of the Processes are historical / prevalent as legacies in organizations.
At times, management introduces relatively more Processes to ensure higher amount of Controls.
Business Process Re-engineering (BPR) is a Rethinking exercise aimed at dramatically improving the Customer Servicing, Work Efficiency & rationalizing Operational Costs.
Re-engineering of Processes – BPR
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Continuous Process Improvement – CPI
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CPI means making things better; it is NOT fighting fires.
Process Definition lists what happens between the start and end points. It includes all the activities performed by each department, group, or person who are involved in the process.
CPI is a regular review of the activities involved in a Process for rationalizing them with an Aim of improving efficiency with adequate Controls and minimum possible Costs.
Quality Management – QM
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All management activities and functions involved in determination of quality policy and its implementation through means such as quality planning and quality assurance (including quality control).
Quality in working methods and operations both in producing goods and providing services brings twofold benefits – Customer Satisfaction / Loyalty and Cost rationalization by eliminating waste and reducing errors / rectification of errors.
Quality Management – QM
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Productivity Campaigns
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Productivity is generally measured by the ratio of output to input.
Running Productivity Campaigns esp., in Manufacturing concerns can lead to significant cost savings e.g., reduction in Labor cost per unit through effective use of time / methods can result in massive Cost savings.
Improved turnaround time in Service organizations can result in similar Cost Savings and improved Revenues.
Cost Consciousness
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Promoting a Cost Conscious Culture across the Organization by propagating the topics of cost understanding, cost containment, cost avoidance and cost reduction.
Switching off Lights / Air Conditioners, while leaving the workplace.
The 3R Concept – Reduce, Reuse & Recycle.
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Tea / Networking Break
Effective Time Management
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Time management refers to a range of skills, tools, and techniques used to manage time when accomplishing specific tasks, projects and goals.
Prioritizing, Scheduling & Goal setting helps in Effective Time Management.
Time is Value; its optimum utilization ensures improved Operating results.
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Performance Reward System
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Link Activities to Vision, KPIs & KPRs.
Provide reasonable Weight to Organizational Goals of Cost Control and rationalization.
When Team Members see Performance Based Rewards, they strive for achieving Goals / Targets.
Performance Reward System
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Effective Feedback Mechanism
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An Effective Reporting System provides timely information on Team / Individual performance and achievement of Goals.
MIS reports help making timely Decisions.
Information must meet the criteria of:Being Relevant Timely &Accurate.
Action Plan
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Identify Costs in your respective Areas / Functions.
See which of these Costs are Controllable without adversely affecting Quality / Performance / Productivity.
Introduce:Budgeting & Variance AnalysisProcess Reviews / ImprovementsQuality InitiativesEffective MIS / Reporting
Value Time – Utilize it Effectively.
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Asar Prayers
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