Cost management in the company
A distinction is made between the rather medium to long-term strategic cost management and short-term operational cost management . In addition, a distinction can be made between reactive and proactive cost management, depending on the occasion.
In economically difficult times (decline in sales, slump in sales prices, etc.), cost management is often operated reactively in the form of flat-rate cost reductions. This harbors the risk that the short-term survival of the company is assured, but the development and development of essential future success potentials will fall by the wayside. As a result, there is a risk that the company will miss important developments and consequently lose its competitiveness .
In contrast, as part of proactive cost management, attempts are made at an early stage and on a continuous basis to influence costs and include future events in cost planning . In addition, proactive cost management does not refer to individual areas of the company, but includes the entire value chain of a company, or even goes beyond it (integration of suppliers and customers within the supply chain ).
This form of cost management is strongly recommended by many experts. In many cases, cost management is already equated with proactive cost management in terms of content.
In addition to the control tasks, a functioning cost management concept also includes cost planning and control tasks. This control loop can be used for cost optimization of a number of cost management objects or cost types , cost units and cost centers .
At the beginning of every planning there is the derivation of cost-related objectives from the higher-level corporate planning . The sales and production plans represent the most important fundamentals. Depending on the nature of the target specifications, these can either be prescribed top-down or jointly determined in consultation with the respective department manager.
In order to be able to take concrete measures to achieve the cost targets that have been drawn up, the actual situation must first be recorded in the form of a cost analysis . The aim is to get an overview of the company's cost status. The subject of such analyzes are the cost level (absolute amount of costs), the cost structure (share of fixed and variable costs) and the cost trend (reaction of costs to variations in one or more cost drivers such as employment or procurement prices, etc.) identify relevant cost drivers themselves and their influence on cost behavior.
In order to comply with the anticipatory character of cost management, which is often called for in the literature, early warning indicators , i.e. signals that indicate future developments in the cost management framework, must also be included in the cost analysis and planning processes as part of the cost analysis.
Based on the plan specifications and the results of the cost analysis, specific needs for action can now be identified, which, depending on requirements, can have a permanent (e.g. Kaizen Costing , or CIP ) or project-related character (e.g. value analysis ).
The implementation of these measures usually requires more or less drastic changes to the existing organization , processes , or product properties, etc. The associated uncertainty usually triggers resistance in the workforce to these changes and requires well thought-out and effective change management or an open one Communication policy to convince the employees of the necessity of the measures.
In order to recognize deviations from the plan specifications and to counteract them in good time, it is necessary to carry out controls. These can have the character of target / actual comparisons . However, this has the disadvantage that it is no longer possible to counteract any deviations. It therefore makes sense to carry out so-called plan progress checks at shorter intervals. It is checked whether the final targets can still be achieved with the current state of developments, or whether the path to the goal is still right. It is also recommended to check at regular intervals whether the framework conditions that existed at the time of planning are still valid. If there are deviations from the plan or if the framework conditions have changed, the deviations must be counteracted, or if the targets cannot be achieved, these must be corrected if necessary.
The corporate areas or structures that are the subject of cost control and optimization measures are referred to as cost management objects. They can be summarized as products, processes and resources.
Since as a rule 70–80% of the product costs are determined by the product design, this field is considered to be the one with the highest cost reduction potential . Two dimensions serve to classify potential savings. The external market and customer-oriented dimension sees the product from the customer's point of view and assesses the product properties and functions. The customer is only willing to pay for the properties that he actually needs. Attention to detail and overengineering lead to additional costs, which the customer is not willing to honor with a higher sales price .
These customer requirements can be divided into basic requirements, performance requirements and enthusiasm requirements according to the Kano model of customer satisfaction. Basic requirements are e.g. B. Product properties that the customer implicitly assumes. If these are not available, this triggers dissatisfaction. Performance requirements are wishes expressed by customers, which increase satisfaction depending on the degree of fulfillment. Enthusiasm requirements are usually not known to the customer, but trigger enthusiasm if they are present. Usually, only the performance requirements can be determined through market research , since the others are not articulated or known.
The conjoint analysis serves as an aid for the systematic recording and weighting of these requirements. The test persons are presented with a series of product specifications that differ in several dimensions. The respondents put these combinations in a sequence based on subjective preferences , whereupon the individual properties are weighted with the help of statistical tools. Subsequently, the cost specification of the product functions and components can be made by means of a target cost calculation. In addition to the market and customer-oriented dimension, the company's internal and technical dimension is important. The reconciliation of customer requirements into technical specifications can be with the help of quality functional representation ( Quality Function Deployment accomplish, QFD). The conjoint analysis can in turn serve as an information basis for customer preference.
A customer-oriented definition of the technical specifications is only part of the technical dimension. The production and assembly- oriented product design ( design for manufacturing , DFM, and design for assembly , DFA) represent important cost-cutting potentials. DFM focuses on designing the products in such a way that they can be manufactured easily and reliably. This can reduce rework , scrap and inspection costs. The focus, however, is on aligning the product design with assembly , which as one of the last work steps in production forms a “reservoir for all errors in the preliminary stages”. In addition, assembly is usually the area in the company with the lowest level of automation . Therefore, product design should focus on ensuring that parts and components can be assembled with the least possible need for time, work space and assembly equipment. The entire construction process should therefore be carried out with the focus on assemblability.
In addition to product design suitable for assembly and production, the so-called “Rule of Ten” should also be taken into account during construction. This means that the later changes are made in the product life cycle , the costs for them increase exponentially (factor 10 per level; e.g. task clarification 1 euro, construction 10 euro, production preparation 100 euro, production 1,000 euro, delivery 10,000 euro). In order to be able to recognize errors or potential changes at an early stage, the use of so-called FMEAs is recommended . In this way, potential sources of error are named and weighted and ranked according to their risk with regard to occurrence, recognizability and impact. The sources of error can be eliminated based on this ranking.
Another aspect of product design that is not insignificantly involved in the generation of costs is product complexity. The two forms of complexity are the "multitude of different product variants ... that are offered to the customer (external diversity)" and the "multitude of different parts and assemblies that go into a product (internal diversity)". These arise on the one hand from the increased striving of companies to differentiate by offering a wide range of variants (external diversity), on the other hand from the lack of internal organization (internal diversity). The cost-related effects of complexity are often underestimated, which means that the inhibition threshold for introducing new variants is very low. Due to the increased complexity, however, an increase in activities is triggered in various company areas, which causes additional overhead costs. Empirical studies showed in the automotive industry at a optimization of the complexity potential for cost reduction in the amount of 2-25% of the production costs .
In addition to the market and customer-oriented, the production and assembly-oriented and the complexity-oriented product design, it should not be forgotten to design the products themselves cost-effectively. This means checking the design decisions made for their cost impact during the entire design process and, if necessary , developing alternatives . In doing so, it is always necessary to weigh up in a conflict of interests whether the lower overhead costs can be justified by the usually increasing individual costs when using identical parts . The latter can result from oversizing the same parts if these are exposed to higher loads in other products and therefore have to be dimensioned more heavily.
Processes represent the connection between the products (for a customer) as a process result and the resources (provided by a supplier) as a process input. This supplier-customer relationship does not only exist for customers and suppliers outside the company, but also for internal ones. The optimization of the processes is therefore another important potential for influencing costs and is presented below. Since the internal and cross-company process network can become very complex and confusing, the processes must be identified, delimited from one another and structured. Because of the abundance of processes, they usually cannot all be analyzed and optimized at the same time, which is why it is advisable to rank them on the basis of relevance , potential for improvement and any restrictions in order to filter out the processes that are “most in need of improvement”.
To optimize this, there are basically two approaches available. With the help of business process reengineering , the processes are completely revised. This means that “ quantum leaps ” can be achieved in several dimensions ( cost , quality , service and time). This type of optimization, carried out in the form of a project , is usually carried out " top-down ", ie starting at the top process hierarchy levels. In contrast, the continuous process improvement is carried out permanently and related to the lower process levels. The process structure is not changed.
Three approaches can be distinguished for optimizing the processes:
- When processes are cleaned up, all activities that do not add value, i.e. those that do not contribute directly or indirectly to value creation in the company, are eliminated.
- The relocation of processes addresses which activities along the entire value chain of a product (extraction of raw materials to marketing to consumers ) a company should carry out itself. In this context, the terms outsourcing and insourcing are also used.
- The third approach is to change the flow structure of processes. This means the revision of the chronological order of the sub-processes and activities. This includes, among other things, lining up and back, parallelizing or combining activities. A special case of parallelization of activities is at home in product development. With so-called simultaneous engineering , product and production planning are parallelized to a certain extent.
In the general understanding, resources are the means that are required to carry out an action or to allow a process or process to run. These can be buildings, machines , materials, personnel, energy , information and / or capital . A comparison of some industries with regard to the cost structure shows that the most important cost blocks are caused by the resources of material, personnel and equipment. Therefore, the cost structure of these will be discussed below. Thereby the problem areas
- Influencing factor price and factor quantity of resources, and
- Design of cost flexibility by adapting resources to fluctuations in demand
Not only because of the large proportion of the total costs, the material costs are an important cost reduction field. In contrast to sales increases, savings made in production material have no discount on the result .
Two ways to reduce material costs are optimizing material procurement and material rationalization . The former can be designed in the course of material procurement. Relationships with suppliers play an important role here. The traditional, highly competitive multi-source supply has developed primarily for technologically high-quality parts and due to the just-in-time trend towards a cooperative relationship with a greatly reduced number of suppliers. Less emphasis is placed on short-term minimization of purchase prices. Rather, through long-term cooperation based on partnership, costs (e.g. by increasing quality or reducing inventory) are reduced for both sides. With these so-called value-added partners, we work together from the beginning of the construction and exchange know-how with regard to cost reduction and technology . Due to the early involvement in the development, cost targets and their periodic reduction can also be set at an early stage. When outsourcing one (or more) part (s) to a single supplier (so-called single sourcing ), in addition to the advantages mentioned above, cost savings can also be achieved through economies of scale.
In addition to the supplier relationships, the selection of suppliers also plays a role. This is often made on the basis of prices. A distinction must be made as to whether the purchase price or the total costs are compared. With the former, there is a risk of wrong decisions due to the fact that various additional costs (transport, currency risk, operating costs, etc.) are not taken into account . This risk can be avoided with the concept of Total Cost of Ownership . All costs over the entire life cycle from procurement to disposal are offset and compared with alternatives . The aim of material rationalization is to use the range of materials as economically as possible. This includes the elimination of waste, e.g. B. in sheet metal cutting. Here can be explained by modern computer programs using computerized pattern optimization of waste reduced. Another approach is to standardize the range of parts . This also includes the use of identical parts . On the one hand, the development costs and, on the other hand, the procurement and manufacturing costs can be reduced due to larger quantities and a smaller number of individual parts. There is also the option of modular sourcing . Instead of individual parts, entire assemblies or modules (e.g. switching power supplies for computers) are bought in.
- Reduction of the workforce
- Adjustment of wages and salaries
In order to make the reduction in the workforce permanent and meaningful, a few preliminary considerations must first be made. The organizational framework conditions must be created that enable the same performance with a reduced staffing level. One way to do this is the flexibility of working hours and the location of use. If one assumes an employee whose daily, weekly and monthly working hours are fixed as unchangeable as the place of work, then his short- and medium-term (up to two years) personnel costs are to be regarded as fixed. A certain degree of flexibility in personnel costs can be achieved through temporary transfers of employees or flexible working time models, even for permanent staff with permanent contracts. This makes it possible to intercept demand peaks in certain areas of the company, or by lower capacity utilization to avoid depopulation times. This smoothing of the personnel requirement can save jobs. It should be noted that personnel policy measures generally require the consent of the works council , which may require concessions in other matters.
Depending on the number and percentage of jobs to be cut, the staff overhang can e.g. B. through natural fluctuation , not filling retirees, reducing leasing staff , early retirement arrangements , dismissals with or without outplacement or dismissals without notice (if justified) . In order to be able to react in good time to coarser, foreseeable fluctuations in demand, it is advisable to carry out an anticipatory and continuous personnel requirement planning. In this way, in the event of an imminent drop in demand, z. B. reduce overcapacities through timely layoffs, or hire employees in the event of additional requirements through timely job advertisements and recruiting .
In addition to reducing the number of employees (factor quantity), a reduction in personnel costs can also be achieved through personnel remuneration (factor prices). Reductions can be made here e.g. B. in the case of bonuses , commissions, etc. if the payment was made on a voluntary basis. A reduction in these additional benefits would reduce costs in the short term, but it would have a negative effect on motivation . Since the remuneration systems are usually precisely regulated on the basis of collective bargaining agreements, works agreements and employment contracts , there are only minor savings opportunities at this level.
In addition to depreciation , a number of other cost items arise over the life cycle of the system. So-called asset management is aimed at influencing the amount and the life cycle-related cost optimization of property, plant and equipment . The amount of capital tied up in property, plant and equipment has an impact on costs and thus on returns . It is therefore critical to question which systems are required to provide the operational service, i.e. which are operationally necessary. If they do not make a direct or indirect contribution to value creation , they can usually be sold without affecting the provision of services. In addition, it must be checked whether underutilized systems could not also be sold and the parts manufactured with them could be purchased from third parties. If a sale is not possible or sensible for technical or strategic reasons, an increase in the capacity utilization of the systems should be aimed for (e.g. through insourcing , joint ventures for joint use with partners, etc.). In addition to the critical examination of existing systems, all new investments in fixed assets must be checked for necessity and sensibility and carried out in accordance with the capacity requirements . Since system costs are made up not only of the procurement costs, but also to a large extent from the running costs of the usage phase and the disposal costs, it is important to monitor and optimize the costs of the entire system life cycle.
The costs of the three phases are interdependent. So z. For example, you can expect additional work in the system construction during the use and decommissioning phase due to reduced operating and disposal costs. In order to avoid the high depreciation of new systems in the first few years of operation, it is often advisable to buy used systems. This reduction in acquisition costs has a positive effect on the cost of capital due to the reduced capital commitment . Of course, it should always be noted that used equipment entails the risk of higher operating and maintenance costs . Therefore, it should always be checked on a case-by-case basis which variant (new or used purchase) appears to be the most cost-effective over the planned period of use.
There is potential for cost savings not only during the deployment phase. During the usage phase, care must be taken to ensure that the productivity of the systems is constantly improved, thereby increasing the use of the systems. One approach that is closely based on the Kaizen philosophy is the concept of Total Productive Maintenance . Employees are involved in the development and implementation of improvement measures. The usually strict organizational separation between production and maintenance is relaxed. Production employees also take on certain maintenance tasks. In order to increase plant productivity, disruptive factors that impair plant availability are eliminated. Losses due to downtimes (system failure, setup or retooling processes), speed losses (idle and short downtimes, reduced speed) and losses due to errors (start-up difficulties, quality defects) have a negative effect on the available system time, which must be minimized.
There is no clear definition and classification of the instruments of cost management in the literature. In general, they can be described as a means of performing cost management tasks. Their primary task is to prepare and support decisions by providing information. By structuring procedures, they can also play an important role in the behavioral control of employees. These include a .:
- Target cost accounting
- Process cost accounting
- Product Life Cycle Costing
- Contribution margin calculation
- Customer income statement / sales segment calculation
- Kaizen and continuous improvement process (CIP)
- Overhead Value Analysis
- Value analysis
- Balanced Scorecard
Cost management organization
Cost management includes a number of tasks, objects and instruments. Their connection is established by the fact that the costs of the objects are to be influenced and shaped by the fulfillment of the tasks with the help of the instruments. This is where the organizational component of cost management comes into play. The responsibility for fulfilling the tasks is assumed by a wide variety of people or organizational units in the company, the so-called cost management bodies. In order to be able to precisely clarify these responsibilities and to define the interfaces that arise in the division of labor, coordination mechanisms are required.
Responsible for cost management
Every employee in the company can i. w. S. be responsible for cost management. The spectrum ranges from the cleaning specialist who z. B. with their decision about the choice of cleaning agent influences costs as well as the managing director with strategic location decisions. Clearly, the scope of the decisions and their effects on the costs in these two extremes represent completely different orders of magnitude according to their hierarchical position and functional responsibility, but the principle of influencing costs through the authorization to make decisions in the respective area of responsibility is the same. As responsible for cost management i. e. S. refers to people or organizational units who perform the cost management tasks. Depending on the cost management task and the associated personal and professional or institutional demands on the sponsors, in addition to the company's employees (often with reference to the controlling department), outsiders, usually management consultants, can also take on sponsoring functions.
Coordination mechanisms in cost management
The exact procedure for processing the subtasks as well as interdependencies with other agencies that may arise have not yet been clearly regulated by specifying the cost management agency and specifying their area of responsibility . A global definition of the processes makes no sense due to various unpredictable influences, but a number of coordination mechanisms are necessary to enable an orderly process.
Cost management in the project
The PMBOK guide provides three main processes for this.
Creation of an estimate (!) Of the costs for the individual project activities. Interestingly, some organizations tend to view estimates as a binding statement of actual final costs. It is therefore important to make a statement about the accuracy in addition to the estimate.
Cost planning considers the costs per activity. This information is important with regard to project controlling or operational expenditure planning (cash management) over the course of the project.
The cost planning includes the estimation of costs or expenses in terms of amount and structure (variable vs. fixed costs, one-off costs vs. recurring costs) as well as cost developments (cost forecast). After determining and forecasting the costs, they are budgeted according to time and factual criteria. In cost control, the costs actually incurred (actual costs) are compared with planned values (target costs) or other internal or external reference values.
The cost control controls and reports the cost development and cost plan adjustments. The project costs are tracked with the help of the project cost accounting. To influence the project costs in the planning phase, a variant of zero-base budgeting is recommended.
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- Stefan Georg: Cut! Recipes for effective cost management . Vahlen, Munich 2016, ISBN 978-3-8006-5114-6 .
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- Johannes N. Stelling: Cost Management and Controlling. 2nd edition Oldenbourg, Munich 2008, ISBN 978-3-486-58780-7 .