Cost-Cutting!

Cost-cutting is good, but not at the cost of your organization.

People are assets, though not reflected in your balance sheet. It is people who give life to the other factors of production that are lifeless.

When you dispose off a physical asset you get revenue while you have to shell out money when you dispose-off human assets. Indiscriminate reduction of staff in the name of VRS and CRS will have telling impact on the organization.

Though downsizing the workforce will show an immediate improvement in earnings, in the long run it may result in a great loss to the organization. Never orverlook the time, money and effort spent by your organization on you staff in training them to suit the requirement of your organization.

There is a difference between cost and investment. Amount spent on human capital is an investment and not a cost. If you are downsizing your workforce in the name of cost cutting, bear in mind that you are really doing away with your investment. Hence, think twice before acting on it.

I strongly recommend the Cost-Control in place of Cost Cutting.

Cost control, also known as cost management or cost containment, is a broad set of cost accounting methods and management techniques with the common goal of improving business cost-efficiency by reducing costs, or at least restricting their rate of growth.

Businesses use cost control methods to monitor, evaluate, and ultimately enhance the efficiency of specific areas, such as departments, divisions, or product lines, within their operations.

Cost control is a continuous process that begins with the proposed annual budget. The budget helps: (1) to organize and coordinate production, and the selling, distribution, service, and administrative functions; and (2) to take maximum advantage of available opportunities. As the fiscal year progresses, management compares actual results with those projected in the budget and incorporates into the new plan the lessons learned from its evaluation of current operations.


Decentralization of Profit Centre can help company to do effective Cost Controlling. In this case individual Division/Department/Subsidiary will be responsible for its Profit & Loss Account or Earning v/s Expenses and they need to maintain their minimize margin or Break-Even Point to continue the operation.

The idea of profit centers and decentralization often gets in the way of good management if the idea is taken very seriously. Such ideas are often not what they seem.

Many companies profess decentralization that do not really have it. Profit centers are not necessarily so – if overall corporate profit performance is being optimized. Independent profit centers are by definition neither independent nor profit centers if, in fact, there is any significant mutual interaction or synergy between cost centers.