How to optimize an ERP system and control costs in a business

Cost control is one of the most important indicators of a company's health. When there is cost calculation and management control, companies do not spend more than they should and strategic cost planning is carried out so that the company can maximize its profitability.

We are not simply talking about the cost control of a project, but of the costs of the entire organization. When we talk about controlling the costs associated with a project, we are talking about project management programs.

As we simplify and standardize the way the company controls its costs, actions can be taken to increase profits, or to act with foresight to address risks.

What is cost control?

It is the process of analyzing the production system to ensure an expected profitability. To control a company's costs, it is necessary to monitor revenues and their upward or downward fluctuations, as well as the proportion of expenditure in relation to these revenues.

Cost control involves categorizing expenses and determining the amount of expenses. This is not a forecast of expenses, but a detailed account of a company's actual costs.

There are different ways of classifying these costs. We speak of direct costs when they are part of the production process necessary for the generation of income. An example would be the purchase of raw materials that are going to be used in the manufacture of the products that you are going to commercialize. Indirect costs, on the other hand, are understood as those that are not related to the generation of income, but are related to the activity. This would be, for example, the cost of the company's vehicle insurance.

A distinction is also usually made between fixed and variable costs. In the first case, these are permanent costs that are maintained over time. For example, an insurance premium may always be the same. In the case of variable costs, these have a different amount from month to month, such as the purchase of raw materials, which will depend on the level of production.

Why is cost control important?

The cost control of a company is of great importance to accurately determine the reality of the business. A company that does not know its costs is not aware of whether it can incur higher costs without jeopardizing profits, or whether it has the margin to incur higher expenses.

In many companies, there is a lack of knowledge about the actual costs incurred, as there is no method for approving or rejecting employee expense requests. For this, it is essential to have a personnel management software, which allows budgeting and takes into account both travel expenses and expense notes submitted by employees in relation to their activity.

Controlling a company's costs also helps to measure the impact of our spending decisions in the short term. Every investment has an effect on cash flow, but it can also affect the relationship between costs and revenues. For example, if we opt for teleworking in the company, the objective is to improve productivity and work-life balance, but also to reduce costs. That is why it is essential to make a cost control of teleworking, to evaluate to what extent it is contributing to the profitability of the company.

Benefits of cost control

What would your company gain if it starts keeping a rigorous, standardized and effective cost control?

  • You could reduce unnecessary costs that are eating into your profit margin.
  • It would allow you to evaluate the best moment to carry out an investment.
  • It would be useful for better strategic planning, e.g. business travel and related expenses, or vehicle routing.
  • It would help your company to be proactive in the face of difficulties, as we are in a high inflation scenario where risk needs to be managed effectively.
  • Your company could make better decisions and smarter strategic cost planning.
ERP software for cost control

Many companies are aware that they need to control costs, but don't know how to do it. The best option is to use an ERP that allows you to effectively manage the costs of your company, both personnel costs and travel costs and expenses related to your activity.

The first thing you need is real and reliable information. You can't wait weeks to be able to assess the costs your company has incurred. You need to assess them in advance, before payments are made. For this, the ideal is a tool that allows you to keep track of expense notes, and where employees can upload the invoice quickly and easily with an app.

An ERP software with cost control allows you to keep a much more accurate analytical accounting. You could create an accounting plan for your company, classify costs according to different criteria and assign budgets to each department. Having a clear, accurate and real-time accounting allows you to have a more complete view of the consolidated income statement of your business and better understand your cost structure.

Once you are clear about your cost structure, with your cost control software you can evaluate the different areas of expenditure and analyze their impact on business performance. This is useful if you have an HR management tool that allows you to analyze employee performance. In addition, you can adopt an expense and purchasing policy that fits your cost strategy to improve your profitability.