Saturday, January 23, 2010

Cost Reduction and Cost Control

Cost reduction and cost control are two different concepts. Cost control is achieving the cost target as its objective whereas cost reduction is directed to explore the possibilities of improving the targets. Thus, cost control ends when targets are achieved whereas cost reduction has no visible end. It is a continuous process. The difference between the two can be summarized as follows:
                                 i.            Cost control aims at maintaining the costs in accordance with established standards whereas cost reduction is concerned with reducing costs. It changes all standards and endeavors to improve them continuously.
                               ii.            Cost control seeks to attain the lowest possible cost under existing conditions whereas cost reduction does not recognize any condition as permanent since a change will result in lowering the cost.
                              iii.            In case of cost control, emphasis is on past and present. In case of cost reduction, emphasis is on the present and future.
                             iv.            Cost control is a preventive function whereas cost reduction is a correlative function. It operates even when an efficient cost control system exists.

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