Pay attention to unnecessary cost control measures

Dr. Forster Kum-Ankama Sarpong, a lecturer in finance and quantitative models, has urged business leaders to know the extent to which to cut cost because excessive cost-cutting measures can have an adverse effect on the business and national development.

“As a nation, in our businesses and in our households, cost management will always be required; but this must be done to achieve the larger good: frequent cost-cutting can have an adverse effect on business and national development.

“Product quality may be affected and staff may be demoralised and inappropriate signals concerning the health of the business may also be made,” he said.

He added that in today’s increasingly competitive business and technological environment, getting the most from existing resources while ensuring costs do not escalate is one of the keys to business success or failure. But he quickly added that controlling costs does not equate to cutting cost.

Dr. Sarpong pointed out that a good budget is the best instrument of cost control in any organisation, and that budget control is a self-evident factor in cost control -- but there are additional approaches and techniques which can support this process.

Also, the Chief Executive Officer of All Ghana Microfinance and Design Resources Estate, Dr. Sarpong, stated that effective controls can help business leaders increase profits and benefits on the same or reduced volume of sales.

“Business executives and public leaders need to make things happen when managing costs. In order to implement cost control within an organisation, it is essential to collect data on what the costs actually are. “Financial strategies must be communicated to, shared and owned by employees, so that they understand the financial implications of their activities and decisions. It is important that employees are aware of the full cost of their activities as well as alternatives to them.

“As managers of the economy we need to know where the activities of cost centres are left unattributed; the level of service usage of such a centre should be considered in the cost allocation process,” he added. He advised that business executives must keep the pattern of the business sales volume over time as closely under observation as cost.

“Know the reasons for abnormal increases or decreases. Calculate regularly the costs of goods sold as a percentage of net sales. Look for increases or decreases in the price of purchased items, increased transport costs, wastage, or losses due to theft. Do not let your fixed costs blindly follow increases in sales volume, which may not be repeated.

“We need to remember the primacy of the customer, whose own personal loyalty is to the best quality at the lowest price; and that buying the cheapest raw material is not usually the best solution, as cheaper often means worse not better.”