COST REDUCTION

&
NBC NORMS
 • Cost Reduction is a process, aims at lowering the unit cost of a
product manufactured or service rendered without affecting its quality
by using new and improved methods and techniques. It ascertains
substitute ways to reduce the cost of a unit. It ensures savings in per
unit cost and maximisation of profits of the organisation.
• Cost Reduction aims at cutting off the unnecessary expenses which
occur during the production, storing, selling and distribution of the
product. To identify cost reduction, the following are the major
elements:
• Savings in per unit cost.
• No compromise with the quality of the product.
• Savings are non-volatile in nature.
•Achieving the goals of cost reduction
•Reducing the cost per unit.
•Increasing productivity.

•How to reduce cost?

•Elimination of waste Improving operations.
•Increasing Productivity.
•Cheaper materials.
•Improved Standards of Quality.
Areas of Cost Reduction
1. Material 4. Outsourcing
•Design. 5. Sales and marketing
•Purchasing. 6. Energy
•Storage. 7. Production
•Transport.
•Production.
2. Labour
3. Overheads
•Increasing the production volume.
•Extension of market and price differentials.
•Size of business units.
Features of Cost reduction
• Cost reduction is not concerned with setting targets and standards.
Cost reduction is the final result in the cost control process.
• Cost reduction aims at improving the standards.
• It is continuous, dynamic and innovative in nature, looking always for
measures and alternative to reduce costs.
• It is a corrective function.
• This is applicable to every activity of the business.
• It adds thinking and analysis to action at all levels of management.

Techniques of cost reduction

Organization and methods
Work study
Material handling
Automation
Value analysis
Variety reduction
Production control
Design
Materials control
Quality control
Tools and Techniques of Cost Reduction
Value Analysis.
Just in Time approach.
Standard costing.
Total Quality Control.
Economic Order Quantity.
Market research.
Benchmarking
Inventory Management and Control.
Importance of cost reduction

•Improves the competitive capabilities and ensures survival, growth and

prosperity.
•Optimum utilization of the resources.
•Provides reasonable prices to consumers.
•Preservation of the nations scarce resources.
•Keeps the price under control charges to consumer.
•Helps govt in controlling inflation.

Importance of cost control

•Enables firm to achieving defined objective

•Proper utilization of firm’s resources
•Growth and survival of a firm
•Make the organisation efficient
• Cost Control is a process which focuses on controlling the total cost
through competitive analysis. It is a practice which works to maintain
the actual cost in accordance with the established norms. It ensures
that the cost incurred on an operation should not go beyond the pre-
determined cost.

• Cost Control involves a chain of functions, which starts from

preparation of the budget in relation to the operation, thereafter
evaluating the actual performance, next is to compute the variances
between the actual cost & the budgeted cost and further, to find out
the reasons for the same, finally to implement the necessary actions
for correcting discrepancies.
Features of Cost control
Cost control process involves setting targets and standards, ascertaining
the actual performance, comparing the actual performance with
standard, investigating the variances and taking corrective action.
It aims at achieving the standard.
It is a preventive function.
In cost control, costs are optimized before they are incurred.
It is generally applicable to items which have standards.
It contains guidelines and directive management such as, how to do a
thing.

Techniques of cost control

• Budgetary control
• Standard costing
• Inventory control
• Ratio analysis
• Variance analysis
Aspects Of Cost Control
1)Planning:- Initially a plan or set of targets is established in the form of
budgets and standards.
2)Communication:- The next step is to communicate the plan to those
whose responsibility is to implement the plan.
3)Motivation:- Motivation is defined as the process that initiates, guides
and maintains goal-oriented behaviors.
4)Appraisal and Reporting:- comparison has to be made with the
predetermined targets and actual performance. Deficiencies are noted
and discussion is started to overcome deficiencies.
5)Decision-making:- Finally, corrective actions and remedial measures
are taken or the set of targets are revised, depending upon the
administration’s understanding of the problem.

Main Areas of cost control

• Materials
• Labor
• Overheads
• Sales
• Energy
Advantages cost control
• It helps the firm to improve its profitability and competitiveness.
• It helps the firm in reducing its costs and thus reduce its prices.
• It is indispensable for achieving greater productivity.
• If the price of the product is stable and reasonable, it can maintain
higher sales and thus employment of work force.

Disadvantages of cost control

• Reduces the flexibility and process improvement in a company.
• Restriction on innovation.
• Requirement of skillful personnel to set standards.

Factors hampering cost control

• Cost of raw materials and other intermediate products is high.
• High foreign commodity prices, particularly oil.
• Power shortages and underutilization of capacity.
• Delay in the issue of licenses.
• High rates of taxes tend to raise the overall costs of production in India.
General techniques of Cost cutting
• Use Skype to make domestic and international phone calls.
• Establish presence on social media sites such as Facebook and Twitter
instead of newspaper, magazine, mail.
• Use electronic communication, cut down on print and paper
communication.
• Outsource computer maintenance.
• Lease equipments.
• Share office or building space with another business.
Steps in Cost control
• Establishing norms:
The first step in cost control is to set norms or standards which may
serve as yardsticks for measuring performance. These standards are set
on the basis of past performance adjusted for changes in future and on
the basis of studies conducted.

• Comparison with actual:

The actual cost incurred are compared with established standard
costs to know the level of achievement. The variations are analysed so
as toy arrive at the causes which are controllable.

• Corrective Action:
Remedial measures are taken to avoid the recurrence of variation in
future and for revision of standards wherever necessary
Key Differences Between Cost
control and Cost Reduction
• The activity of maintaining cost as per the established norms is known as
cost control. The activity of decreasing per unit cost by applying new
methods of production in such a way that it does not affect the quality
of the product is known as cost reduction.

• Cost Control focuses on decreasing the total cost while cost reduction
focuses on decreasing per unit cost of a product.

• Cost Control is temporary in nature. Unlike Cost Reduction which is

permanent.

• The process of cost control is completed when the specified target is

achieved. Conversely, the process of cost reduction has no visible end
as it is a continuous process that targets for eliminating wasteful
expenses.

• Cost Control does not guarantee quality maintenance, however 100%

quality maintenance is assured in case of cost reduction.

• Cost Control is a preventive function as it ascertains the cost before its

occurrence. Cost Reduction is a corrective action.
Cost control is the achievement of pre- determined targets of costs.
Cost reduction is the achievement of the real and permanent
reduction in costs.

Cost control tends to assume a static state of affairs and that standard
once set are not challenged.
Cost reduction assumes the existence of concealed potential saving
in the standards or pre- determined costs set for cost control and
that these standards are always subject to challenge.

Cost control is concerned with predetermining costs, comparing it with

actual costs, analysing the variances and taking corrective
measures.Cost reduction is not concerned with maintenance of
performance according to predetermined targets. it is rather
concerned with finding out new product design, methods,etc

Cost control is a part of cost accounting function

Cost reduction may be achieved even when no cost accounting
system is in operation

Cost control lacks dynamic approach to cost improvement

Cost reduction is more dynamic approach to cost improvement
 Comparison Chart
BASIC OF COST CONTROL COST REDUCTION
COMPARISON
Meaning A Technique used for A Techniques used to
maintaining the economise the unit
costs as per the set cost without lowering
standards is known as the quality of the
cost control product is known as
cost reduction
Savings in Total Cost Cost per Unit

Retention of quality Not Guaranteed Guaranteed

Nature Temporary Permanent

Ends When The pre-determined No end

target is achieved
Types of function Preventive Corrective
 DIFFRENCE

Cost control Cost Reduction

Prevention action(Tries to keep Corrective action (permanent
costs confined to the limits set by reduction in the unit cost of good
norms) mfg.)
It is the means to an end, namely It begins where cost control ends
cost reduction. It emphasizes partly on present
Emphasis the present and past costs and mainly on future costs.
behavior of cost It is a dynamic concept
Lack of dynamism Establishing by improving upon
Establishing budget and /or the standards and the methods of
standard and initiating remedial production.
action where there is a deviation of Universal applicability
actual results Tools of technique-value
Limited applicability engineering, work study, operation
Tools of technique-budgetary system
control, standard costing.
 ROLE AND IMPORTANCE OF NORMS

• Norms provide safeguards. Although no code can eliminate all risks,

reducing risks to an acceptable level helps.
• Norms have been the primary source for guidance in the design and
construction of building structures for many decades.
• Norms ensure the economic well being of the community by
reducing potential spread of fire and disease.
• It provides Standards for structure, placement, size, usage, wall
assemblies, fenestration size/locations,
• Norms provide minimum standards for safety, health and general
welfare.
PRINCIPLES FOR DEFINING SPACE NORMS
• BUILDING CODES ARE THE STANDARDS “CONSERVATION BUILDING
CODES” ARE THE KEY POLICY INSTRUMENT USED BY THE GOVERNMENT
TO LIMIT BUILDING PRESSURE ON ENERGY AND SPACE.
• SPACE NORMS FOCUSES ON LIVING CONDITIONS AND COMFORT
FOR THE OCCUPANTS.
• THESE SERVES AS A MODEL CODE PROVIDING GUIDELINES FOR
REGULATING BUILDING CONSTRUCTION ACTIVITY.
• THEY EXIHIBIT MINIMUM AND MAXIMUM ROOM SPACE AND EXITS AND
LOCATIONS.
STANDARDISATION AND SIMPLIFICATION

Simplification is a process of product analysis through which

unnecessary varieties and designs are eliminated.Only a limited
number of grades, types and sizes of the product are retained.

Standardisation is the second step after simplification towards

interchangeable manufacturing. Having selected the varieties and
grades of the products to be retained as much of its manufacturing
details are standardised as possible.
• Since manufacturing involves a large number of decisions from
selection of raw material to the process used for finishing,
standardisation of some of these items reduce unnecessary
repetition of work.

• Use of standard components reduces inventory costs, ensures

interchangeability and makes future maintenance easier.

• It also reduces component cost since standard components are

manufactures by mass production methods and are cheaper.

• Selection of standard materials ensures physical performance

and guarantees failure-free operation. Use of standard methods
of production enables comparisons to be made of the standard
and actual manufacturing time.
• The purpose of standardisation is, therefore, on one hand,
efficiency and economy in the use of human effort and on the
other economy of material varieties and stock quantities and
therefore reduction in cost and increase in turnover.
 NBC SPACE NORMS

Transportation Planning: Classification of Urban Social Infrastructure

Roads
NORMS AND STANDARDS
Design Considerations of Urban Roads Education (NBC-2005)
S.No Road Types Space Studen Populatio
Standards(m)
S.n Category n Area Other
t
o strengt Served/ Requirement Controls
h unit
1. Urban Expressway 50-60
2. Arterial Road 50-80 1. Pre-primary - 2500 0.08ha To be located near
a park
3. Sub Arterial Road 30-50
2. Primary 500 5000 Area per Playfield area with
4. Distributor /Collector Roads 12-30 school=0.40HA a minimum of18m
Class i-v (NBC a)School building x 36m to be
- area=0.20ha ensured for
5. Local Street 12-20 b)Playfield effective play
2005) area=0.20ha
6. Access Street 6-15

3. Senior 1000 7500 Area per Playfield area with

school=1.80ha a minimum of
secondary a)School building 68m x 126m to be
area=0.60ha ensured for
b)Playfied effective play
Area=1.00ha
c) Parking
Area=0.20ha
 NBC SPACE NORMS

Health Care Facilities (NBC—2005)

Community Open Spaces –NBC
S. Category
no
Population
Served
Land Area
Reqd.
2005
s.n category Area/Populatio Area reqd. for LIG
Min. o. n served
1. Dispensary 1 for every 0.08ha-
15000 0.12ha a) Community open 15% of the area Needs of area
population spaces of layout

2. Nursing Home 1 for every 0.20ha- b) Community open 0.3-0.4ha / 0.3 ha/1000 persons
45000 - 0.30ha spaces 1000 persons
100,000 c) Land measuring Shoud be At one place/ or
population >0.3ha reserved pockets
Capacity 25-
30beds
3. Poly-clinic With 1 for every 0.20ha-
some observation 100,000 0.30ha
beds population

4. Intermediate 1 for every 0.40ha-

Hospital (80 beds 100,000 1.0ha
)category B population
5. Intermediate 1 for every 1.0ha-3.7ha
Hospital (200 100,000
beds )category A population
 NBC SPACE NORMS

• Socio-Cultural Activities
(NBC-2005) Miscellaneous ( NBC-2005)
S.n Category Populatio Land s.no Category Population Land Area
o n Served Area Served Reqd. Min.
Reqd.
1. Aanganwadi 5000 200-
• Housing Types.Min. 300sq.m
1. Community 5000 750sq.m
Room 2. Shopping 5000 1500sq.m
Convenience
2. Community Hall 15000 2000sq.m Shopping
3. Recreational 100,000 10,000sq. 3. Police ,Civil 40,000 0.16ha
Club m Defence
Sports Activity (NBC-2005) Police post 90,000 1.50ha
Police Station
S.n Category Populatio Land
o. n Served Area 4. Fire 200,000 0.6ha
Reqd.Mi Sub-fire station
n. 5. Distribution NBC-2005
1. Neighbourhood 15000 1.50ha Services
Play Area
2. Residential 5000 5000sq.m
Unit Play Area
Mix Land –Use (NBC 2005)LIG Housing In Urban Areas

Saleable
Use zone Residential
Type-A
50% min.

Saleable Work
Use zone Places,Schools,Institutions,Sh
Type-2 ops,Community Places,etc.
20% Max.

Non-Saleable
Roads,Padestrian
Use zone Paths,Drains,Public & Semi-
Type-3
Public Open Spaces
30% max.