Fixed Cost In Break-Even Analysis Refers To The Cost That Cost Management In An Organization

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Cost Management In An Organization

Expenses are an aspect of a company’s budget that must be managed effectively and efficiently. The recent trend shows that most organizations are concerned about costs rather than profitability and all their efforts are directed towards ensuring that the company’s costs are as low as possible. The idea is that profitability depends not on sales volume, but on how costs are kept low. Various means are adopted to reduce the costs of an organization.

After the economic crash or downturn that hit the world in early 2009, many organizations were forced to cease operations, close completely, or sell out. Others who are still working are struggling to survive and are doing everything in their power to cut every element of cost within their overall system, ranging from downsizing, cutting wages, cutting allowances, saving on diesel/petrol, used by the energy machines, merging responsibilities and positions, hiring people with not very high qualifications so that they receive a low salary, etc.

Organizations that do not pay attention to cost management are now embracing the concept and in fact cost managers are not hired or consulted to help minimize costs so they stay in business. This challenge in the global economy has attracted the attention of many experts, authorities, scientists, critics, etc. towards finding a solution to the malaise that was predicted to be with us for quite some time.

It is not appropriate for organizations to invent ways to reduce their costs. Depending on the organization and what it does, costs can be well addressed using different cost management strategies. The cost pattern of organizations may actually be different, but broadly there are two classes of costs: fixed costs and variable costs or capital costs and recurring costs.

CAPITAL COST/FIXED COST MANAGEMENT

This cost class can be managed by any or a combination of the following:

1. Reduce investment in fixed assets or use an alternative asset or machine for the high-purchasing asset or machine.

2. Choose the best purchasing method by eliminating many of the agents or middlemen for acquiring the asset or machine. This helps to reduce the cost of acquiring the asset/machine

3. Keep maintenance costs as low as possible by hiring a maintenance manager instead of carrying the maintenance company’s machine all the time with huge bills.

4. Allow experts to handle the various assets so as to reduce maintenance costs due to breakdown and mishandling

5. Etc.

MANAGEMENT OF CURRENT COSTS / VARIABLE COSTS

This asset class can be effectively managed if captured well through the following:

1. Lay off non-essential workers or negotiate a pay cut with them

2. Keep telephone costs and stationery low by promoting a central reception call center by routing all calls through the central telephone and the calls are transferred to the department or person needing the call instead of each person to their high-cost telephone expenses

3. Running the generator and the consumable machines for a period of one hour, it can be during the break

4. Reduce allowances a bit or direct them towards outstanding performances

5. Manage accounts efficiently

6. Etc.

These are just suggestions and may not actually work with your organization. However, the point is that the costs should be well addressed and all efforts should be aimed at reducing them in order to increase the profitability of the organization. Follow these steps:

1. What are the cost elements in this organization? Identification

2. What proportion of the organization’s profit did they consume? Analysis

3. How can we reduce costs? Making a decision

4. How to do this? Implementation

5. How do we know we’ve done it right? Control and monitoring

In conclusion, when reducing the costs of the organization, it should be kept in mind that people (workers) are very important and deserve the best. It has to be explained to them well, because they can resist it, frustrate it and cause more problems, thus paving the way for higher costs. Cost cutting should not be too sudden and kill other people. It should be done with absolute care and friendliness.

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