Scientific And Effective Cost Control Techniques

McKinsey used to evaluate Chinese enterprises in this way: "the giant of cost advantage is the dwarf of cost management".

Actually, cost control is an art of spending money instead of saving art.

How to spend every penny just right and use every resource of the enterprise to where it is most needed is a difficult problem faced by Chinese enterprises in the new business era.

The traditional cost management is based on whether enterprises save or not, and unilaterally starts with reducing costs and even trying to avoid some expenses, emphasizing saving and saving.

However, the international companies believe that the enterprises that control the basic idea of cost saving are only local enterprises. They have nothing to do with exploiting workers and reducing raw materials.

Therefore, we need to learn the cost control strategies and methods that modern enterprises should have.

If enterprises want long-term benefits, they can only be implemented at a strategic level.

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In other words, it is not to cut costs, but to increase productivity, shorten production cycles, increase output and ensure product quality.

Purely

Taking the cost reduction as the sole goal, we can not get farsighted.

Approval.

In simple pursuit of cost reduction, generally simple measures will consider lowering the purchase price or grade of raw materials, or reducing material input (stealing material) of a single product, or considering reducing the labor cost of the process, so as to achieve the purpose of cost reduction.

This is very dangerous, it will lead to a decline in product quality, the loss of labor resources, and even loss of the market already owned.

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In many business processes, many business owners have different financial analysis and evaluation, but most of them have not paid close attention to the financial analysis ability of these managers. In fact, risk assessment and profit are the basis for financial managers to make the best strategic decisions.

For this reason, management consulting experts classify their financial characteristics into four categories according to their attitude towards profits and expenses: venture capitalists (such as Apple Com puter Inc's Steve Jobs), commercial Pirates (such as Sandy Weir of Citigroup), mercantilism (such as Chuck Conaway of Kmart group) and "discount store operators" (such as TLC Beatrice food company Rojena Luis).

Executives must match their financial traits with their real needs.

Do these methods have inherent advantages or defects in creating value?

To answer this question, we first need a set of methods to evaluate different financial behaviors of executives.

The financial idiosyncratic method can provide useful information to answer these questions by evaluating the way executives create value for enterprises and specific methods.

The standard models for measuring leadership generally tend to focus on such aspects as strategic vision and executive ability, communication skills and so on, instead of directly examining the financial methods adopted by leaders in practical work.

For example, they may focus on the ability of a leader to reduce costs in a given vision, but will not seriously explore the specific ways in which people deal with these problems.

This method of financial character can make up for this deficiency.

Management consulting experts say: "leaders of enterprises have two basic motivations: to add value to products or services and effectively allocate resources of enterprises."

The first driving force can be deduced from the gross profit margin of enterprises.

Gross profit margin is gross profit (business income minus sales cost) divided by revenue.

Usually, financial analysts use gross margin as a means of measuring the added value of products or services.

In terms of measurement results, it is much more accurate than profit, because profits can sometimes be very high, while value-added is very small. Sometimes, on the contrary, profits are very low and value-added is very high.

The second power can be deduced from the indirect cost ratio of enterprises.

The indirect cost rate is the cost excluding sales cost divided by operating income.

This data may not be the best criterion for measuring the utilization of resources, but it does provide a good clue to the amount of expenses, and the relevant information of the cost can be found directly from the profit statement.

The financial idiosyncratic method combines the two types of data gross and indirect costs to determine the specific financial methods employed by executives in enterprises.

To ensure that the content is comparable, this method takes into account the average value of the two data in a particular industry or market.

It is important to make clear that the financial trait law is only a measure of the economic means employed by executives.

This is different from some similar psychological assessment methods. The evaluation of executives by financial trait law is not based on their personality, but is evaluated by different people's views on the financial risks and corresponding returns of enterprises in different situations.

To understand this method, we must first know that gross margin, which is linked to the performance of senior executives, is high and low, and the cost is the same.

Therefore, there are four kinds of extreme situations in the financial trait Law: first, high gross margin and high cost; two, high gross margin and low cost; three, low gross margin and high cost; four, low gross margin and low cost.

Each kind of situation has corresponding financial behavior, they are called "venture capitalist", "commercial pirate", "mercantilism" and "discount operator" respectively.

The details of these four characteristics illustrate how these four groups use resources and create value in different ways.