Cost control is a very important concept that is often not given much importance due to the focus of companies on improving profit margins. Cost control in simple words refers to the process by which the company manages and minimizes the costs associated with running a business. Cost control includes identifying and reducing unnecessary expenses, increasing efficiency and productivity, and implementing budgeting and financial planning strategies without hurting the quality of the products or services that the company offers to its customers. In order to get a better understanding about this concept one should look at some of the advantages and disadvantages of cost control –
Advantages of Cost Control
Increase in Profitability
The first and foremost advantage of cost control is that it helps the company in increasing its profitability of the company because once the costs are controlled company can increase its profit margins without increasing the selling price of the good or service. In simple words, the saying that money saved is money earned fits perfectly for companies that are focusing on cost control because these companies do not need to increase the price of the product in order to earn profits as that task is getting done due to cost control.
Makes Company Competitive
Cost control helps the company in remaining competitive because when faced with competition the company can lower the price of the product without any loss in profits due to effective cost control and hence can attract more customers towards the company due to competitive pricing as compared to the competitors operating in the same industry.
Encourages Innovation
When the coronavirus pandemic hit the world then people were skeptical and said that it will take 5 to 10 years to make a vaccine but its vaccine was developed within 2 years which shows that when there is no choice then humans find ways to succeed. In the same way, when the company decides it will do cost control then it can encourage businesses to find new and more efficient ways of doing things, which can lead to innovation and growth hence on can say that cost control in a way encourages innovation.
Disadvantages of Cost Control
Short Term Focus
The biggest disadvantage of cost control is that it can lead to the company focusing on short-term goals which is to control cost anyhow which in turn may lead to the company sacrificing long-term growth opportunities. Hence in simple words just like college kids do not go for a job immediately after completing college but rather go for higher studies so as to get a better job in the same way companies have to spend rather than cut costs in order to achieve success in the long term.
Demoralizing
Another problem with cost control measures is that if they are implemented without proper communication or consultation with employees then it can create an environment of fear and mistrust among employees because cost control is done at all levels including employee remuneration and hence it can negatively impact the morale and productivity of the employees. Besides once it is out in the open that company employs cost control measures for employees also then a company may find it more difficult to attract and retain top talent which in the long run can create a big hole as far as human assets of the company are concerned.
Compromise on Quality of Products
Cost control is good but when this cost control is done at the expense of reducing research and development expenses, reducing perks to employees, and other such measures then it will impact the quality of the products which in the long run is not a good thing as no company can survive for long by serving low-quality products to their customers.
As one can see from the above cost control has pros as well as cons and that is the reason why any company thinking of adopting cost control measures in the company should carefully read the above points and then only should adopt cost control measures in the company.