Cost Management in Allocating Financial Resources

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Table of Contents

Introduction
Problem of Inadequate Cost Management
Proposed Solutions
Identifying Costs
Goals vs. Financial Capabilities
Enhancing Organizational Culture
Conclusion/Recommendation
References

Introduction

Financial asset management is one of the key tasks of the company’s development. Strategic planning, which is an essential aspect of risk minimization, involves drawing up effective programs to control available funds. However, direct and indirect materials costs complicate this process and require careful analysis of expenses at all operational levels. As a result, without analyzing these expenses, organizations may lose profits and fail to meet market competition.

Implementing a cost management strategy based on the assessment of all items of expenditure is a potentially effective practice to eliminate unexpected expenses and create an environment in which finances are allocated wisely. The company should develop and implement an asset control program that takes into account all types of costs to avoid budgetary issues and prevent problems with the lack of funding for the business development directions. Cost management is a critical procedure to perform, and reporting is a tool to realize this activity efficiently.

Problem of Inadequate Cost Management

Failure to avoid unexpected expenses is fraught with severe financial losses and, therefore, the loss of an opportunity to promote the business in the market. Companies may have sufficient resources to use the funds for development, but in the absence of an adequate risk prevention strategy, threats increase. This is true if the organization is involved in the manufacturing sector and produces goods that require complex assembly procedures.

In addition to direct costs, such as the components from which products are made, indirect materials costs are crucial to consider. This may be transportation, clearance, and other types of activities that are not part of the final product but are required for its production (Blocher et al., 2019). Ignoring these items of expenditure is fraught with significant losses because, despite profits, companies will not be able to develop actively if assets are spent faster than planned. Resources are not adequately controlled, and companies cannot spend funds according to current needs due to the need to fill gaps in the budget (Krynke, 2021). Therefore, addressing this task is significant in the context of market stability.

The instability of financial management affects the organizational culture and creates difficulties for effective interaction with the workforce. Employees do not receive sufficient motivation because, despite their performance, the company cannot achieve the tasks set. According to Ameen et al. (2018), “by implementing management accounting into the organizational culture, the benefits of this process can be long-term and sustain the competitive nature of the organization” (p. 1). Cost management is an integral part of this accounting process. Thus, the issue of allocating financial resources requires introducing adequate mechanisms of risk prevention through cost management procedures.

Proposed Solutions

Identifying all the items of expenditure is one of the solutions designed to minimize financial risks for the company. In addition, the assessment of the manufacturing resources is to be performed to match the declared costs with the available financial capabilities. Working with personnel within the organizational culture is a practice to ensure the support of subordinates and achieve effective control over budgetary funds to avoid threats.

Identifying Costs

Organizational costs can fall into several categories depending on the type of work performed:

Operating costs are the materials required to produce specific goods and perform services.
Labor costs are the resources needed to pay salaries and bonuses to employees.
Marketing costs are the funds that are required to be spent on promoting products in the target market.

Having an adequate plan for evaluating all costs in these categories can help company management determine the proportion of assets involved and eliminate unexpected expenses.

Goals vs. Financial Capabilities

Matching operational objectives with financial capabilities is an initiative to prevent unwanted investments. With a full understanding of the budgetary potential of the organization, its management can use the available assets rationally, without fear that the funds will not be enough to complete the tasks. This measure is a relevant procedure in the cost management process and is mandatory if the company is working on several development projects.

Enhancing Organizational Culture

Effective interaction with employees in the context of organizational culture is an important aspect of establishing effective control over the distribution of financial resources. Subordinates who work in a favorable environment perform their immediate duties responsibly, and the leaders of the organization can expect adequate reporting. Promoting changes in human resource management can positively correlate with the cost management process due to the rational use of the workforce.

Conclusion/Recommendation

The adequate implementation of cost management through reporting, identifying all cost items, and enhancing organizational culture is a critically important aspect of strategic planning and effective allocation of financial resources. To avoid unexpected losses and prevent budget risks, the company should maintain an operating environment in which employees are aware of all the activities in which the business is involved. This can help promote a productive work environment and increase market competition by minimizing the risk of asset mismanagement. The analysis of direct and indirect materials costs is one of the main procedures to perform.

References

Ameen, A. M., Ahmed, M. F., & Abd Hafez, M. A. (2018). The impact of management accounting and how it can be implemented into the organizational culture. Dutch Journal of Finance and Management, 2(1), 1-9. Web.

Blocher, E. J., Stout, D. E., Juras, P. E., & Smith, S. (2019). Cost management: A strategic emphasis (8^th ed.). McGraw-Hill Education.

Krynke, M. (2021). Management optimizing the costs and duration time of the process in the production system. Production Engineering Archives, 27(3), 163-170. Web.

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