Management cost models are tools or methodologies that organizations use to supervise and direct their activities, ensuring that resources are used efficiently and effectively to achieve strategic objectives. These models help align daily operations with strategic objectives, providing key metrics and indicators for decision making.
Here are some of the most common management control models:
Minimizing variable costs is a common problem in areas such as process optimization, logistics and production. There are several models that can be applied to minimize these costs. Below are some of the most used:
To minimize inventory costs (ordering and inventory holding costs), EOQ (Economic Order Quantity) models are very common. They help determine the optimal order quantity to minimize the costs of holding and reordering inventories.
Audit of purchases, comparing each of the shipments with the details of the purchase orders. Quantities, product quality and prices are reviewed vis-a-vis purchase orders. The comparative analysis serves to immediately raise a red flag and correct the value of the invoices.
Each of the activities to complete the processes of a production or service is detailed to determine the minimum use of resources that guarantee efficiency and in turn lower the variable cost.
Fixed asset cost minimization models are financial and optimization tools used to reduce the costs associated with the acquisition, maintenance, and operation of a company's assets, without compromising its efficiency or operational capacity. These models focus on efficiently managing the life cycle of fixed assets, which include property, plant, machinery, equipment and other tangible investments.