CAT / FIA FMA Syllabus F. Performance Measurement - Cost control and cost reduction - Notes ^{1 / 3}

Cost control essentially involves the setting of targets for cost centre managers and then monitoring performance against those targets.

A cost control systems entails six requirements:

effective delegation of authority and assignment of responsibility for costs
an agreed plan that sets up clearly defined and agreed goals
motivation to encourage individuals to reach the goals established and agreed
timely reporting with alternative suggestions how to reduce costs
recommendations and action which must be followed
effective follow-up system to ensure that corrective measures are being effectively implemented

Examples of cost control techniques: - budgetary control, standard costing and control of capital expenditure.

Cost reduction is the reduction in unit cost of goods or services without impairing suitability for the use intended,

i.e. without reducing value to the customer.

Hence, it looks at methods of improving profitability by reducing costs without necessarily increasing prices.