Question

In a tight economy, there is general recognition that ‘business as usual’ won’t cut it and managers need to find ways to get by with less of everything. Declaring which costs to cut is just as important as determining how much to cut. Cutting across the board is never the right. A better approach is to attack the problem by grouping functions, departments and projects into one of the following four categories:
•Select areas where cost cutting will not stop recovery or affect critical current programs. Cut these sharply or eliminate them entirely.
•Select activities that must be retained but can be delayed or cut back into an inactive state for four to six months.
•Determine where money can be spent more effectively in areas that can’t be cut back.
•Finally consider investing in new or existing projects that can benefit the cost control program and be of continuing value in a recovery.

The best single tool for cost control, in good times or bad, is still the budget performance report. It is important that the budget is credible and the line items are understood to know which budget items are affected when the company is committed to spending money. It is necessary to get the details from the accounting department to help understand why the budget or cost objective was exceeded. Manage the budget line by line, not in total. Subordinates should be held accountable for the specific elements of the budget that they control. If they don’t have responsibility for separately reported cost centers, find some other ways to get them to relate to budget performance as a cost control tool.​

Answer 1

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Answer 2

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