CHAPTER ONE
1.
INTRODUCTION
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:
I.
Quantity discount or
cash discount for early payment to supplier may be negotiated at favorable
discount rates.
II.
Inventory control
policy might need improvement
III.
Value analysis may be
carried out
IV.
Procedures for reducing
material wastage in production should be instituted.
b)
LABOUR
COST
I.
Labour efficiency may
be improved by work study.
II.
Unit labour cost and
unit overhead cost may be reduced by having production efficiency rewarding plan
with the employees
c)
FINANCIAL
COSTS
I.
Where there is the
desire to allow for discount, it should be done on a regular basis.
II.
Bank overdraft expense
may be better reduced by effective cash monitoring efforts.
d)
RATIONALIZATION
MEASURES
I.
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.
1.8
DEFINITION
OF TERMS
II.
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.
III.
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.
IV.
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
V.
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.
VI.
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.
VII.
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.
VIII.
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.
IX.
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.
X.
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.