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What is Cost Control?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 19 November 2016
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Also known as cost containment or cost management, "cost control" is a term that is used to collectively describe the various strategies and approaches that make it possible to manage expenses with the highest degree of efficiency. Both businesses and households will implement different types of cost control measures as a means of using income or revenue to best advantage while also managing to keep the home or business operating effectively. To this end, cost control normally involves a combination of methods that include reasonable allocation of resources to essential functions while also taking steps that are designed to reduce the costs of maintaining those essential functions.

One of the chief benefits of cost control is that the overall process helps to reduce the waste of resources on a day to day basis. For example, a business may evaluate several different vendors before selecting a few to provide the raw materials needed to operate a manufacturing facility. Typically, the goods must possess a level of quality that in turn will make it possible to sell the finished goods at a reasonable profit margin. At the same time, the goal is to purchase those raw materials at prices that are low enough to keep that profit margin within an acceptable range.

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Within the actual framework of the operation itself, a number of cost reduction methods may be used as part of the overall cost control scheme. This includes making sure that materials are moved through the process efficiently, helping to reduce costs associated with labor and time. Businesses often utilize resources to evaluate current levels of production and efficiency, using the results of those evaluations to minimize waste of time and materials while increasing productivity. The end result of this type of cost control means more product produced with fewer resources, effectively increasing the potential profits.

Cost control also involves placing limitations on spending for different goods and services. Typically, this means working within the confines of a budget. Simply put, effective cost control results when actual costs do not exceed the total amount of the budget allocation for those functions. In order to accomplish this, individuals who are entrusted with the authority to make purchases are often looking for the best deals on everything from notepads to production machinery, while making allowances for the quality standards required by the company when it comes to purchasing different types of products. When these efforts are successful, the business is able to retain more of its revenue as net profits, which in turn can be used to retire debt and create financial reserves for use in future expansion projects, research and development, and a number of other efforts that would ultimately benefit the company, its owners, and the employees.

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