The Effect Of Cost Reduction And Control Techniques On The Performance Of Manufacturing Firms In Nigeria

Project and Seminar Material for Business Administration and Management BAM

The Effect Of Cost Reduction And Control Techniques On The Performance Of Manufacturing Firms In Nigeria

Chapter One

1.0 Introduction

1.1 Background of the Study

A business can be defined as the sum total of those activities that have their main purpose of creations, maintenance and extension of a concern, with continuous to exist because it earns profit or than benefits.

Business is set-up to achieve certain objectives, these objectives may range from maximum of the organizer, wealth, rendering of certain essential service to the community, capturing of larger share of market for it product or services to maximization of profit or minimization of cost.

In achieving these goals, resources inform of human and material have to be employed these resources employed are measured in quantitative term and then translate them into what is know as cost.

A rational businessman has in his mind apart from other aim in his business undertaking, the maximization of profit and minimization of cost. But the business operation environment is dynamic and complex. Some factor, internal and external, may affect the cash flows position of the firm and posses a threat to the going concern intension of the organization of the business.

1.2 Statement of the Research Problem

The major problem of this study is to find out the effect of cost and reduction of maximization of cost. Undoubtedly, it will lead to decline in operating profit or low return on invested capital and gradually culminate into cash flows or liquidity problems.

A continuous high operational cost with less revenue will have adverse effect on the break even position of an organization.

In view of the above, there will be need to put in place an effective operational and control strategies to overhaul and revamp the operational performance of the business so as to have stable and stand financial stand.

Although, strategies is never set where a business has no problem of any form, but it may be set to improve the operational standard of a business enterprise.

There are many strategies that can put in place to solve business problem. Among the strategies for solving business economic problem are the cost control and cost reduction is used to achieve the corporate objectives.

More so, the cost control techniques have the broad objective of curtaining cost within a predetermined target but cost reduction is an active and dynamic concept that attempt to extract more from the factor of introduction without loss of effectiveness. It also aims at reducing costs from accepted standard and at the same time maintaining the effectiveness of the product or services. Strategies in business organization.

Also, the problem of the cost reduction in economic of Nigeria business organization and the effort made in solving economic problem of the cost reduction in Nigeria business organization.

However, the fulfillment of this intension in totality is very subjective and unrealistic as a result of inevitable environmental factor which have direct or in direct impact on the business.

The environmental to have effects on the cost structure of organization, they are determinant of the operational cost of activities or service being carried out by a business enterprise as they influence more or most significantly the management policies.

For example, taxation, which is one of the government fiscal policies in the annual budget, will in no doubt, have effect on the operational cost of a company. This is one of the operating environmental factors and it is uncontrollable by the management of a business.

More so, the organization and operational policies of a company will have favourable or adverse effect on the cost structure of such organization.

Therefore, an incessant increase in the operational cost will negate the aim

However, the success of thus strategy will depends on the style of planning the business uses. The inability of a company to encourage “GAOL CONGRUENCE” is one of the associative problems militating against the successful employment of these schemes.

In attempt for an organization to achieve it’s goal for satisfaction of individuals in the firm must be created. The achievement of goal congruence requires consideration by the firm, a broad range of human need in additional to those that can be satisfied by economic rewards.

Where the above cannot be achieved, the effects of cost control and cost reduction scheme might not augur well for the business, therefore, cost control and reduction strategy must be meticulous used and implemented on achieving the desired objective of the schemes.

The techniques involves the strategies shall be fully considered in the subsequent chapter.

1.3 Objective of the Study

The purpose of the research is to find out what are the effect of the cost control and cost reduction strategies on the overall performance of a firm. It will reveal the short-coming in these strategies for solving business economic problems.

The research will also attempt to define and explain the meaning of cost control and cost reductions, the technique involves as well as the different in their applications.

However, the result of the research will serve as a single guide to policy makers in the business organization in taking decision as regard to thus topic.

1.4 Statement of Hypothesis

Cost control and cost reduction strategies do not lead to achievement of corporation objectives and cannot be used to solve business economic problems.

  • Hi: Cost control and reduction strategies can be used to achieve corporate objective and also used to solve business economic problems.
  • Hi: Cannot be used.

1.5 Research Methodology

In the course of the research, both primary and secondary data will be used, some companies will be used as a case study in the research project.

The secondary data will be got from annual report, audited account of the various companies and other various publications relevant to the study.

1.6 Scope and Limitation of the Study

Due to time and financial constraint only few companies will be used for the research and questionnaires will be serving on the companies. The companies will be selected warmly from the different sector of economy.

The scopes of cost reduction embrace activities of the entire company, from production to marketing and at all level with the organization from the operation to top levels. Cost reduction effort may include the following

a) Material Cost:
  1. Quantity discount or cash discount for early payment to supplier may be negotiated at favorable discount rates.
  2. Inventory control policy might need improvement
  3. Value analysis may be carried out
  4. Procedures for reducing material wastage in production should be instituted.
b) Labour Cost
  1. Labour efficiency may be improved by work study.
  2. Unit labour cost and unit overhead cost may be reduced by having production efficiency rewarding plan with the employees
c) Financial Costs
  1. Where there is the desire to allow for discount, it should be done on a regular basis.
  2. Bank overdraft expense may be better reduced by effective cash monitoring efforts.
d) Rationalization Measures

As a company expands in activities, there may be duplication of effort in the different face of it operation.

However, this duplication can be removed by ensuring that resources are concentrated in the firm and this is referred to rationalization effort, which is aimed at cost reduction that brings about efficiency at the workplace.

1.7 Significance of the Study

At the end of the research, the effect of excessiveness in the use of cost control and cost reduction strategies in an operation will become clearer.

The management will always take cogitation of other option in evaluating solution to business economic problems.
Also the problem, which can warrant the use of the two strategies, will be discussed and alternative strategies which management can adopt in solving the business economic problems will be taken in consideration.

1.7 Definition of Terms

I. Undue Expenses:

Undue expenses can be removed without having to compromise the quality of this term of production or unit of services provided. Consumers can only appreciate buying goods of better quality. Nonetheless, a lowering of the standard may ensure the reduction of cost but at the expense of the quality of goods.

II. Management Inconsistency:

Cost reduction programme require the support and commitment of the top management and this has to be on a regular and consistent basis in order to avoid complacency not minding whether the business climate is harsh or friendly.

III. Resistance to Change by Employee:

Employee may want to react to change negatively as a result of past belief on norms, this can be addressed by ensuring that existing system or work environment situations are constantly reviewed and friendly employee are involved at every stage in order to gain their confidence and support with this, negative will be eliminated and cost reduced

IV. Faultless System:

A faultless system may be a desired one but effort should be made to ensure that it is not over blown so that unnecessary controls are removed.

V. Avoidance of Elaborated Procedures:

Elaborate procedures of allowed in a company may bring about costly operation at the expenses of ensuring that employee capabilities are recognized which could lower cost.

VI. Creative Ideas:

Since issue can be approached from different ways, ideas and contribution from everyone involved in cost reduction programme must be allowed for in order to eliminate wastes. Creative ideas can be enhanced by ensuring that employees are given good incentive to work and the work environment must be friendly so that any scheme put in place can be successful.

VII. Areas of Cost Reduction:

For cost reduction activities to be meaningful, the sources for incurring these cost such as finance, marketing, production, human resources. Engineering, maintenance, etc need to be considered in terms of the material, labour and overhead costs involved in the area mentioned. There is need for using an integrated approach whereby cost is not considered in isolation, but their inter-relatedness is given some consideration. The manager is, therefore, expected to exchange ideas that will allow for goal congruence to be attained.

VIII. Maintaining Cost Reduction:

Reduction can be sustained or maintained by ensuring that there is consistent control of costs in a place with the aid of budgetary control techniques.

IX. Communication:

Information to employee must be such that they are timely relevant, focused and less costly. Information will be valued, where employees are convinced that their future is guaranteed and prospect can be ascertained at the same time. Good and equitable personnel manual must also be in place.

Chapter Five

5.0 Summary, Conclusion and Recommendation

5.1 Summary:

It becomes necessary to make a summary of the work so far undertaken in this project. The study has highlighted the need for control in business operation. The reasons for cost study, basic control concept in detail and the employable cost control and cost reduction mechanism.

However, it should be borne in mind that some costs can not be significantly controlled because of their peculiar nature in the costs. The behavioral aspect of human factor in the companies operation was not overlooked. This was significant impact on the success of an control mechanism put in place in the conduct of their activity of business and the attainment of its set objectives.

The implication of the research findings have shown that there are certain factors militating against effective application of cost reduction mechanism to achieve the desired result in the company selected for the study as well as in other organization in Nigeria. Such factors identified are; low participation of lower level of management in decision making, unpredictable economy trends, inability of relevant data for planning and budgeting. Irrationality in decision making, making money illusion, arrogation of power by upper management and a host of other factors.

The research findings also shows that little success as been achieved on the employment on cost control and cost reduction technique because of misplaced priority and improper analysis of business problem(s). There are other problems which are non-financial that are parasitical to the growth and development of the business operation.

5.2 Recommendations:

To achieve the desired objective of cost control and reduction measure and for significance of is reflection on the overall performance of the company. The following recommendations may be followed;

  1. Proper definition of business problem should be made.
  2. Financial discipline should be strictly maintained by all level of management.
  3. Provision should be made for training and development of all level of employees.
  4. Employee should be adequately motivated.
  5. Lower cadre of management should be allowed to participate effectively in decision making process.
  6. Less dependence on importation of material, local ones should be developed.
  7. Constant review of control mechanism.
  8. Effort should be intensified on research and development programmed.

Since little benefit have been raped from cost control and cost reduction techniques, it is also recommended that the management of an organization should adopt a new management philosophy called TOTAL QUALITY

Management Control (T.Q.M).

The basic aim of this method is to achieve quality improvement on product and services. It is cost cutting exercise in the sense that the primary objective is to achieve qualitative product or services and reduce the level of wastage arising from production of inferior product or services. It also reduces the total manufacturing costs.

5.3 Conclusion:

The topic “cost control and cost reduction strategy for solving business economic problems” was chosen to highlight the concept of costs, pin-pointing the application of traditional cost control and cost reduction.

Technique fishing out the accrued benefit and short comings of excessiveness of the measure and analyze the effect on the overall performance of the business.

Finally, the employment of the technique becomes inevitable as the strategies can be used to achieve corporate objective, to solve business financial problems.

The Effect Of Cost Reduction And Control Techniques On The Performance Of Manufacturing Firms In Nigeria

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The Effect Of Cost Reduction And Control Techniques On The Performance Of Manufacturing Firms In Nigeria


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