What Is Cost Control System?
A Cost Control System is a system for calculating, analyzing, and simulating costs.
To begin with, cost generally refers to the expenses required for manufacturing and selling products and providing services. Data related to cost can be categorized into material cost, labor cost, and manufacturing cost by form, direct cost and indirect cost, variable cost, and fixed cost. In addition, this data can vary fluidly or be prorated across the entire product. A Cost Control System is a system to grasp and control such costs accurately and in real-time.
Cost Control Systems collect and manage cost-related data, which must be handled in conjunction with other business systems such as inventory control, sales management, and accounting. Therefore, Cost Control Systems are often provided as a part of ERP (Enterprise Resource Planning) functionality, enabling smoother and more accurate cost control through data integration with other business systems.
Usage of Cost Control System
Cost Control Systems are used to identify and analyze costs, maximize profits, and respond to risks through optimal cost control. Proper cost control contributes to higher profits, lowers the break-even point, and increases business stability.
To this end, it is important to grasp and visualize data on which and how much costs are being incurred. By implementing a Cost Control System, it is possible to collectively manage data related to costs and calculate them in real-time. In addition, the profitability of each product and the cost required for each process can be determined from these data, contributing to the improvement of productivity.
Features of Cost Control System
The following items can be managed by implementing a Cost Control System:
1. Cost Accounting
Cost accounting is the automatic calculation of costs based on cost-related data. Cost accounting is classified into individual cost accounting, total cost accounting, full cost accounting, partial cost accounting, etc., depending on the application.
There are different types of costs, such as standard cost, actual cost, and scheduled cost, and these costs can be calculated automatically.
2. Cost Variance Analysis
Cost variance analysis is to calculate standard cost and actual cost. Whether the variance is favorable (actual cost is lower than planned cost) or unfavorable (actual cost is higher than planned cost), it is important to understand the cause of the variance and to improve the accuracy of cost forecasting.
3. Profit and Loss Calculation
Profit and loss calculation is to calculate profit and loss by product to determine profitability. In addition to ordinary cost accounting, Cost Control Systems enable total cost control at each stage, which makes it possible to determine marginal profit and analyze profitability, opportunity loss, etc.
4. Cost Simulation
Cost simulation is to grasp various cost fluctuation factors and make future forecasts based on accumulated cost data. It enables prompt response to future risks such as raw material price hikes and labor cost increases.
5. Allocation
Allocation is the process of defining and distributing costs that are difficult to strictly incorporate into cost accounting, such as costs that cross over divisions or products, or common costs of divisions. Because product management requires complex allocations across different departments, Cost Control Systems are effective in calculating allocations.
How to Select a Cost Control System
It is important to choose a Cost Control System that fits your industry. We recommend that you look at case studies to see if other companies in your industry or business sector have introduced such systems, and select a system that best suits your production style, such as mass production, make-to-order production, or prospective production.
In addition, a PoC (proof of concept) is necessary before introducing the system to see if it can be integrated with the systems handled by your company and if it can be customized to meet your business requirements.