Total Cost Management

Recently I had attended the program on total cost management by CII, before we strat tour for direct material topic it would be nice to have overview of total cost mangement.

Total Cost Management

overveiw:

Traditionally, when we refer to project management it only begins with initiation of project.does not address what happens before a project is initiated; i.e., how is the project identified and decided upon among other operating, maintenance, or investment options available to an enterprise. Total Cost Management maps the process upstream of project management

What is TCM (Total Cost Management) ?
Many people label TCM as cost cutting methods on the contrary, it is not a stand alone cost cutting method rather it is distinct approach to cost management built around technique, system & tools. A unique element of the TCM process is that it integrates all the steps that an organization must take to deploy its business strategy.
Total Cost management is company wide systematic and structured approach , which provide holistic framework to control, reduce and eliminate costs, throughout the value chain.

Component of Total Cost:
Prime Cost: Price Cost consists of cost of direct materials, direct labors and direct expenses. It is also known as basic, first or flat cost.
Factory Cost: Factory cost comprises of prime cost and in addition works or factory overheads that include cost of indirect materials, indirect labors and indirect expenses incurred in a factory. It is know as works cost, production or manufacturing cost.
Office Cost: Office cost is some of office and administration overheads and factory cost. This is also termed as administration cost or the total cost of production.
Total Cost: Selling and distribution overheads are added to the total cost of production to get total cost or the cost of sales.

Table can be reffered to summrized way:-





We can say there are four pivots for TCM
1.Total Cost Consciousness.
2.Total Cost Measurement.
3.Total Cost Responsibility.
4.Total Cost Improvement.

Before we understand TCM we should be aware what is cost cutting and cost management?
Cost Cutting:
1. It is random and not based on business plan.
2. It is rarely relates to profits.

Cost management:
1.to identify and eliminate non value added costs.
2.to identify and evaluate new activities that can improve the future performance of the organization.

last not the least this not the complete TCM explaination but to give brief idea major aspect covered,It also cover ABC ( activity based costing), ABM( activity based mangement), breakeven analysis, invetory management and target costing
Not all but in next topic shortly,I would cover ABC ( activiy based costing).

Cowboy Wisdom: Seen in the workplace

Cowboy wisdomCowboys know that when you discover you are riding a dead horse the best strategy is to dismount and change horses. In business, however, it seems that we try other strategies with dead horses:
1. Buy a stronger whip.
2. Change riders.
3. Say things like, "This is the way we always have ridden this horse."
4. Appointing a committee to study the horse.
5. Arraging to visit other sites to see how they ride dead horses.
6. Increasing the standards to ride dead horses.
7. Appointing a tiger team to ride the dead horse.
8. Creating a training session to improve our riding ability.
9. Change the requirements to declare "the horse is not dead."
10. Hire a contractor to ride the dead horse.
12. Harness several dead horses together for increased speed.
13. Declare "No horse is too dead to beat."
14. Provide additional funding to improve the horse's performance.
15. Purchase a product to make dead horses run faster.
16. Declare the dead horse "better, faster, and cheaper."
17. Form a quality circle to find uses for dead horses.
18. Revisist the performance requirements for horses.
19. Promote the dead horse to a supervisory position.

Unfortunately the option of budgeting for a new horse and feed to keep said horse alive is almost never considered.
(source: net)