Difference between Cost Control and Cost Reduction

Difference between cost control and cost reduction

Difference between cost control and cost reduction

A thorough understanding of the difference between cost control and cost reduction concepts helps businesses develop suitable strategies, which enables them to manage their financial resources and achieve sustainable growth.

The major difference between cost control and cost reduction is that cost control is the process of maintaining costs at estimated levels whereas cost reduction is the process of lowering the unit cost of production without compromising the quality. 

The following are the key differences between cost control and cost reduction:

1. Cost control is about keeping costs in check by following established rules, while cost reduction is finding smarter ways to make things cheaper without making the product worse. Both are important for managing money in a company.

2. Cost control is a strategic method that focuses on lowering total expenses, while cost reduction aims to decrease the costs associated with each unit of a product.

3. Cost control is a short-term measure, while cost reduction is a permanent measure.

4. The process of cost control reaches completion when it achieves a specific target. In contrast, cost reduction is an ongoing effort that reduces unnecessary expenses continuously.

5. Cost control does not guarantee quality maintenance, while cost reduction can indeed ensure 100% quality maintenance.

Cost Control vs. Cost Reduction

6. Cost control is an important preventive function that aims to determine costs before they occur, while cost reduction functions as a corrective action.

7. Cost control efficiently manages expenses within set limits, while cost reduction focuses on using innovative production techniques to lower the cost of each unit without sacrificing the product’s quality.

8. Cost control focuses on reducing the total cost of a product, whereas cost reduction aims to lower the price of each unit of the product.

9. The cost control process concludes when it achieves a specific target, while the cost reduction process is ongoing without a defined endpoint, periodically reducing unnecessary expenses.

10. Cost management doesn’t prioritize maintaining standard quality, while cost reduction does.

11. Cost control proactively identifies costs before they incur, serving as a preventive measure while cost reduction takes the form of corrective actions, as opposed to preventive cost control.

12. Cost control is inherently a quick process, while cost reduction is a more long-lasting effort.

Difference between cost control and cost reduction

Key Difference between Cost Control and Cost Reduction

1. Cost control doesn’t ensure the preservation of product quality, while cost reduction has no noticeable impact on product quality.

2. The cost control process acts as a preventive measure to reduce expenses before they occur, while the cost reduction process is used to actively minimize costs.

3. Cost Control is more of a routine activity. It requires close monitoring whereas cost reduction is research-oriented; it is a form of improvement so it demands creativity.

4. Cost Control does not talk about the quality of the product; it focuses on reduction only while cost reduction is reducing the cost whole maintain the quality of the product.

5. Cost Control focuses on reducing the overall cost whereas cost reduction is an attempt to reduce the per-unit cost.

6. Cost Control is temporary, It is just a measure to reduce variances between actual and budgeted whereas Cost Reduction is a permanent reduction in the cost of a good or service.

Distinguishing Cost Control and Cost Reduction

7. Cost Control can be regarded as a preventive function as it attempts to maintain the cost at the required pre-set standards whereas cost reduction is a corrective measure. It tries to enhance the efficiency of the current control mechanism. It assumes that there is always scope for reduction.

8. Cost Control is focused on the past and present cost data whereas Cost Reduction is a future-oriented concept.

9. Cost Control is not a dynamic function; it tries to reach the minimum cost at a given point in time whereas Cost Reduction is a continuous process. It is not a period-based concept but it analyses new ways to reduce costs.

10. Cost Control focuses on maintaining the standards and achieving the established standards whereas Cost Reduction is challenging all the predefined standards and brings costs down further.

11. Cost Control uses techniques like budgetary control and standard costing whereas cost reduction uses tools like simplification, standardization, value engineering, ABC analysis, etc.

12. The cost control process involves defining the standards, measuring actual performance, comparing actuals with standards, estimating variances and taking corrective actions whereas cost reduction is a critical analysis of existing standards to improve the standards rather than creating the standards. It tries to improve the efficiency of the existing control mechanism. 

Difference between cost control and cost reduction

Cost ControlCost Reduction
It maintains costs within predefined limitsIt minimizes overall expenses to enhance profitability
It focuses on monitoring and regulating expensesIt focuses on the proactive optimization of costs
The cost control approach functions preventively and involves corrective measures.The cost-reduction approach involves a continuous improvement process and strategic initiatives.
It manages costs across different areas of the organizationIt identifies opportunities for cost optimization
It emphasises stability and financial disciplineIt emphasises profitability and gaining a competitive edge
The techniques used are budgeting, standards, variance analysisThe techniques used are competitive analysis, product design optimization
It maintains financial control and stabilityIt enhances profitability and competitiveness
It implements budgetary controls and preventive measures
It redesigns products and streamlining processes

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