Cost Management

Cost Management in UAE

Cost management is the process of effectively planning and controlling the costs involved in a business. It is considered one of the more challenging tasks in business management. Generally, the costs or the expenses in a business are recorded by a team of experts using expense forms. The process involves various activities such as collecting, analyzing, evaluating, and reporting cost statistics for budgeting. By implementing an effective cost management system, a company’s overall budgeting can be brought under control.

Cost management in UAE is employed by many businesses as an integral part of business management. Cost management is also considered a form of management accounting that helps to identify future expenditures in a business to reduce budget overages. When cost management is applied to a specific project, the expected costs in the business are analyzed in the beginning phase of the planning period. The project manager then approves the predicted expenses in purchasing the materials The costs and expenses are recorded and monitored during the project execution period to ensure that the cost is in line with the actual cost management plan. Once the project is complete, the actual costs are compared with the predicted costs, which will help in predicting future expenses.

Some of the advantages of cost management include:

  • The ability to predict a project’s future expenses and costs
  • The maintenance of a central record of all predicted expenses
  • The ability to ensure that costs are approved before purchases are made
  • The ability to control a project’s expenses

Cost management can be explained by helping with the 5 main steps. They are as follows:

Resource planning:

The practice of anticipating the future resource needs for a company or a project’s scope is recognized as resource planning. This requires appraising and coordinating the use of the material resources—physical, human, financial, and informational—necessary to carry out work activities and their associated duties. The majority of tasks require the use of laborers. Materials and consumables are needed for some tasks. Other tasks entail producing an asset mostly from inputs of information (e.g., engineering or software design). Typically, people employ equipment and other items to assist them. Automated tools may occasionally do the task with little or no human effort.

Cost estimation:

Costing is the forecasting process used to quantify, cost, and price the resources required for an investment option, activity, or project scope. It involves the application of techniques to convert quantitative technical and procedural information about an asset or project into financial and resource information The results of the estimates are mainly used as input data for business planning, cost analysis and decision making or project costing and planning processes

The cost estimation process is typically applied at each stage of the asset or project lifecycle when the scope of the asset or project is defined, reviewed and refined As the level of definition of the scope increases, the estimation methods used become more explicit and produce estimates with increasingly narrow probability cost distributions

Cost budgeting:

Budgeting is a subprocess of estimating that is used to allocate the estimated cost of resources into cost accounts that will be used to gauge and evaluate cost performance. This serves as the starting point for cost control. The cost accounting procedure must be supported by the cost accounts used from the chart of accounts. As part of the schedule or to solve budget and cash flow issues, budgets

Cost control:

Measurement of deviations from the cost baseline and successful corrective action are key components of cost control. Procedures are used to keep track of costs and performance as a project moves forward. The predicted ultimate total costs must be continuously forecasted, and any changes to the cost baseline must be documented. Explaining the reason for a deviation from the cost baseline when actual cost information is available is a crucial component of cost control. This research suggests that remedial action might be needed to prevent cost overruns.

Benchmarking:

Benchmarking is the process of comparing a company’s performance to that of another company that is regarded as being the best in the industry, or “best in class.” To find internal improvement opportunities, benchmarking is used. Cost Benchmarking is a technique used to compare a product, service, or supplier’s price to the market, its rivals, or to its own internal procedures and operations. Organizations can find areas, systems, or processes that can be improved through incremental (continuous) or significant (business process re-engineering) changes by using benchmarking.

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