Cost control – What it is, definition and concept

Cost control is an accounting practice aimed at achieving the maximum possible profit. To do this, using the optimal resources and incurring the appropriate costs for a project.

Accounting work places cost control as a basic business activity in all types of economic activities.

Through cost control, companies have the ability to plan and control their management. In this way, they make budgets based on their own productive performance and their organizational circumstances.

In other words, these types of strategies help to maximize profits through exhaustive control of the costs incurred in the activity.

In that sense, it is a practice encompassed within the so-called cost accounting. This is developed by the administration and management of each organization with the main objective of achieving optimal production processes.

An example of these accounting practices is the elaboration of cost scandals, very common in the hotel and restaurant sector.

Characteristic features of cost control

The establishment of productive cost control plans often involves the following points:

  • Efficiency goal: Organizations know their efficiency ratios more accurately, allowing the most optimal design of future processes and strategies.
  • Away from ineffectiveness: Productive goals are more achievable from the point of view of efficiency.
  • Detailed study of processes: An exhaustive control of costs facilitates knowing the optimal productivity of each one of the productive phases that are faced. At the same time, it allows the creation of more efficient budgets or business plans.
  • Adaptability: Each cost control model is adaptable to the details of each particular organization.
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Cost control modalities

Considering the great variety of organizations and production processes, it is possible to find numerous examples of cost control in the economic day-to-day.

In this way, some basic strategies can be classified when establishing this type of controls:

  • Qualification of the workforce: Taking into account the activity to be carried out, a good design of the workforce makes it easier to undertake better productive yields.
  • Possibility of outsourcing: Sometimes, the outsourcing of certain services entails cost reduction and the possibility of improving production efficiency.
  • Loyalty and long-term vision: Having common and long-lasting suppliers, as well as standardized and continuous processes, translates into a lower level of costs for adaptation or research.
  • Computerized management and obtaining relevant data: The correct valuation of inventories or productive ratios helps in decision making.

One of the most prominent examples is known as the ABC system. This methodology focuses on the priority accounting of the added value created and the costs of each activity carried out in a company.

However, most control models direct their objective to the accounting of costs related to instruments and materials used in production work.

On the other hand, technological progress has led to the digitization and exponential improvement of this type of process. New technologies allow organizations to continuously monitor their processes and obtain relevant data instantly.

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