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cost management

Products/services have to be priced right; it cannot be too high to lose clients and cannot be too low to lose profits. Thus, cost management is a vital business aspect that helps businesses to price their goods and services. For continuous business operations, companies have to monitor costs closely and find innovative solutions to optimize costs. Cost management helps companies in optimum utilization of organizations’ limited resources to generate maximum value.


When businesses face turmoil, they immediately turn to cut cost, this aggressive cost reduction does help them in the short run but proves detrimental in the long run. To avoid such situations, businesses must resort to cost management. Cost management is not limited to cost monitoring and cost control alone, it is a complex process because every firm operates in different scenarios, and thus cost management is best done by professionals.


Organizations these days are not just concerned with good financial performance; they have various social and environmental responsibilities to handle. Cost management includes strategies to gain market advantage and competitive pricing strategies for sustainable growth. Cost management is thus a business sustainability tool which when used rightly lowers costs, attracts customers, improves profitability, retains employees, improves the brand image, and attracts investors.

I. Factors Affecting Cost Management:


Cost management helps organizations to survive and grow during challenging situations while facing high capital costs, slow economic growth, and tough competition. Many factors affect cost management, some of which are listed below:

1. Market Competition:

Large numbers of similar products are available in the market, every firm uses different methods to cost their products as their products may be in different life-cycle this leads to price differentiation forcing companies to charge the product at a lower price so that they can compete with other products and attract customers.

2. Working techniques:

Since every firm has uses different production and manufacturing processes to produce a product, businesses must analyze every step of the production process and eliminate the steps or procedures that do not add value to the end product, however, easier said than done this involves many other factors like employees involvement, changing work processes, new capital expenditure, etc thereby causing a hindrance in cost management and control.

3. Technology:

The benefits of the use of technology are many including increased speed, productivity, reduced time, storage of huge information, reduced errors, etc. However, the use of the best technology involves huge expenditure thereby increasing the cost of the product/service.

4. Material and inventory costs:

The cost of materials and inventory affect pricing. The high cost of raw materials and huge inventory storage cost-push product costs upwards.

5. Tax Rates:

Heavy tax rates and high excise duties impact the cost of production and result in increased cost of products.

II. Techniques of Cost Management:


Some techniques are used to develop cost management strategies, improve productivity, and achieve business efficiency. These techniques increase the quality of products, processes, and reduce overall business costs.

1. Time management:

Organizations dwell on the saying that time is money, for instance- a delayed decision on borrowing funds can increase the interest rate, and hence, management of time is of prime importance in any organization. Similarly, employees should be trained to understand the value of time to increase efficiency and productivity.

2. Inventory management:

Inventory management is crucial to any organization, reducing inventory cost, storage cost; avoiding excess stock of inventory is a primary concern because companies avoid blocking funds in inventory as it can be used for other investments.

3. Outsourcing:

Outsourcing helps an organization to save time and reduce employee costs, however, while outsourcing, businesses must ensure that the quality of service is not affected.

4. Check on market trends:

A firm should be up to date about the latest market trends in their processes, they should be abreast with all latest technologies and should monitor their regular activities, doing this helps companies to eliminate unnecessary tasks, thereby reducing time and cost.

III. Benefits of Cost management:


Cost management strategy encompasses many business aspects resulting in increased profitability and gaining market share. Other benefits of cost management are:

1. Predicting future costs and expenses and long term market trends:

Cost management involves analyses of the various cost that contribute to product/service pricing, this analysis includes market study, competitors pricing strategies, various quotations, and monitoring prices of raw material and inventory, such detailed study helps an organization to predict future prices of their raw materials and finished goods based on market conditions and provides a better road map to price its product for better returns.

2. Wastage reduction:

Cost management helps to reduce waste by improving processes and use of technology, less waste helps an organization to be more sustainable as there is mindful consumption of limited resources producing the best quality of products.

3. Analysis of current business position:

Organizations thrive, survive, and grow. A firm grows by diversifying its product lines or through acquisition. Cost management helps organizations to take acquisition decisions only if their current costs are well contained.

4. Attaining goal congruence:

To achieve sustainability organizations need to motivate their employees by monitoring their performance and holding them accountable for their work and rewarding good performances, enabling companies to have dedicated and motivated employees who put forth their best and in the process reduce overall cost.

5. Evaluating cost strategies:

Cost strategies that are implemented need regular monitoring to check if they are delivering results and results in frequent modifications to the existing strategy for more value creation. Regular evaluation of cost strategies improves productivity, reduces defects and errors, lowers operational costs, attracts customers, retains manpower, and improves the corporate image.

6. Calculating variances comparing actual costs with the budgeted cost and taking corrective steps:

An organization can improve its corporate image through business sustainability; a good corporate image enables companies to gain market share, create brand value, and increase profitability. This sustainability should align the firm’s business and finance goals and work in tandem to achieve long-term corporate goals.


Diligen’s dedicated professionals are highly experienced in cost management techniques; they make a detailed analysis of various business parameters. Our team is fully updated knowledge with current market conditions which they use to understand the clients’ business dynamics. We do not engage in only cost reduction but also help clients in using their resources properly. Our professional team of experts uses the latest systems and technology while devising the appropriate cost strategies. We support our clients by regularly monitoring the outcome of strategies implemented and suggest changes if necessary. At Diligen we believe in shouldering our clients and help them by providing cost management services that link business sustainability and cost control aligning the organization and social goals.

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