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Role of Cost Reduction to Improve Business Performance

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Cost Reduction

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Introduction

The increasing external difficulties will impose challenge on the business in terms of handling all kinds of cost. The major concern of an entity is to deal with their cost as this factors will determine the strengths and weaknesses of an enterprise. Qatar petroleum has been selected for this project report as the main emphasises of this enterprise is to cater the external business entities. The cost reduction strategies will be applied by an enterprise throughout the project report. This report has given great importance to the major categories such as labour cost, operating cost and the capital expenses covered in an enterprise. 

Labour Cost Reduction

Review of the Level of Compensation

The cost of labour needs to be reduced by reviewing the level of compensation paid to all the employees (DRURY, 2013). Salaries and wages tend to move in one particular direction which will create significant changes in the markets and financial conditions. The oil and gas industry is strong enough in order to beat all the existing competitors. The paying schedules can be reviewed properly which will help an entity in order to assess their current working pay as per the external market trends. The overall level of compensation. The time should be eliminated between the breaks given to an employee in the work which will result in delaying in the overall work. This working delay will decrease the productivity of an enterprise. The employees should be paid according to their work as in this industry the profit margin is less which will deteriorate the current position of an enterprise by paying higher to all the employees higher than the desired target. The demotion in the salaries and wages of the factories will not be imposed but it needs to be implement after speaking to all the current employees (Bagliani and Martini, 2012). This informing regarding the current business models which will clarify all the problems currently faces by an individual. This transparency in the decisions will be helpful for an entity as it will result in increasing productivity. The expected rise in the income of an individual will increase the overall jobs by inviting wide number of candidates. The skills and capabilities of an individual will get increases with the business complexities.

Reduce Employee Turnover

It is one of the essential aspects of every business as this will decrease the productivity of the overall business. The company operations includes paying salaries and wages which engaged in the recruitment, selection, employment and training provided to new employees (Ball, 2013). The lack of satisfaction will increase the employee turnover in an enterprise such as invisible costs incurred in an entity which includes poor quality, longer production times, greater waste, greater oversight and theft and misappropriation. All these reasons will increase the employee turnover in an enterprise which needs to be minimised by motivating wide number of employees. It plays a significant role in an enterprise for maintaining stability of all the employees in an entity as one of the effective measure of cost cutting.

Cross Train Employees

The unnecessary training provided to all the employees which will increases the cost of an enterprise and reduces its sales and the revenue. The major concern of the business is to reduce the overall cost which is possible in an entity. The specialist and normal workers are trained in diagonal situations in order to nurture the existing skills and talents of an individual (Braun and Tietz, 2013). The ability of an entity will require in making significant changes in the business operations. The trained workforce of an entity are required to perform variety of operations which will enable an entity in order to make changes. These changes will include lay-offs, ability to deliver products or services to the different variety of customers. The services of an entity are to be polished before transferring to the other stage which is the end consumers who utilise the end products which is finished products by paying consideration in return of the given services.

Reducing Payroll Expenses

The handling of these kinds of expenses are handled by human resources managers who are specially appointed to handle these kinds of expenses. The payroll expenses are taken into considerations which will consider all working hours and able to design wages of the monthly by considering single holidays and overtime compensation earned by an employee.

Operating Expenses Reduction

The increasing sales and the revenue of an enterprise will result in higher profit but operating cost will reduce the earned revenue of an enterprise (Ball, 2013). The reduction of cost require immunal business strength as it can be painful process which deals in achieving all kind of expenses by deducting it from the sales and the revenue of an enterprise. There are various ways by which Qatar petroleum can reduce their overall operating cost which are given as follows:

Establishing Cost Cutting Goal

The goal of overall cost cutting must be cleared which will assist an entity in setting goals. The development of the goals and the objectives which will save the business revenues. This target of achieving the goal will inspires an entity in order to complete their desired aim in order to achieve all the goals and objectives of the business.

Re-evaluate Suppliers

The suppliers of the business needs to be properly evaluated as it will help an entity in order to prioritise their existing suppliers. This assessment of the suppliers will assist an entity in order to maintain the quality as the good quality of products will be able to gain customers satisfaction. The suppliers are called upon which will inquiries into the current matter of the business suppliers in order to cut the overall prices (Bozkurt, Dokur and Yildirim, 2014). The schedule of the suppliers has been prepared which will help an entity in order to make significant changes in the existing Business Conditions.

Maximize Employee Efficiency

The lack of individual efficiency of an employee is strong enough in order to reduce the overall business capabilities. The overall productivity may get hamper due to the wrong actions of thy employees which will destroy the current brand image of an entity. The employee's efficiency may get increases by enhancing their current skills and talent by focusing on their existing capabilities. The task allocation should be perfect which will increases the business efficiency.

Employee Benefits

The reduction in nth employee benefits will increase the surplus available with an entity as their main role is to cater the external business demands. The changes related to the political in terms of different variety of rules and the regulations which will help an entity by complying with all the legislations (Bagliani and Martini, 2012). The reduction in the incentives and perks provided to all the employees should be minimised which will reduces the external burden on an enterprise. The employer need to upfront all the employees in order to communicate all important information to all the employees all at once to reduce the external pressure on an enterprise.

Capital Expenses Reduction

Reduction in Capital Expenses cost in the Oil and Gas Industry due to capital budget reductions and cost savings, capital expenditures are forecasts (Ball, 2013). Crude oil and natural gas as well as distributed to the drop in expenses. Capital expenditure includes a major financial decision for petroleum company, the expenditure should be structured at an annual shareholders meetings or special discussion of Board of directors of the company. Reduction in capital expenditure in the oil and gas industry is possible as:-

Acquiring Fixed and Intangible Assets

By acquiring certain and intangible assets as intangible drilling cost, it is possible for company to get reduction in oil and gas industries. It includes expenses like fuel, repairs, supplies, wages and so on. So, to make certainty on such types of assets petroleum company can get can capital expenditure reduction.

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Preparing an Asset to be Used in Business

To use this technique, petroleum company get savings in cost of capital so to prepare an asset in proper way which is useful for company is great tool for reduction.

Restoring Property or Accepting it to Unique Use

Assets which can be recycled for industry, company can reuse that that property and make new property by utilizing products in different way. So that cost can be saved and capital for new expenses can be reduced.

Upgrading an Existing Asset if it Results in a Superior Fixture

If assets concludes in extra fixture then petroleum company can upgrade exist asset (Bebbington, Unerman and O'Dwyer, 2014). Therefore, existence of assets be present and also no extra expenses remains to bear in purpose of reduction of capital expenditure of oil and gas.

Conclusion

It can be summarised from the above project report that entity needs to give higher importance to the cost component in an entity. This increasing cost element can leads an entity towards the path of success or failure of the business. The different types of strategies are used by this entity in improving their existing business conditions. The positive results obtained by an entity is the positive outcomes generated by implementing different cost strategies used by an entity. The use of different strategies will help an entity in achieving goals bad the objectives.

References

  • Bagliani, M. and Martini, F., 2012. A joint implementation of ecological footprint methodology and cost accounting techniques for measuring environmental pressures at the company level. Ecological Indicators. 16. pp.148-156.
  • Ball, R., 2013. Accounting informs investors and earnings management is rife: Two questionable beliefs. Accounting Horizons. 27(4). pp.847-853.
  • Bebbington, J., Unerman, J. and O'Dwyer, B., 2014. Sustainability accounting and accountability. Routledge.
  • Bovens, M., Goodin, R. E. and Schillemans, T., 2014. The Oxford handbook of public accountability. OUP Oxford.
  • Bozkurt, O., Dokur, Ş. and Yildirim, A., 2014. The Importance of Cost Calculation Method in the Accounting and Management of Turkish Operating Costs. A Research within the Scope of TAS-2. International Journal of Academic Research in Accounting, Finance and Management Sciences. 4(2). pp.38-46.
  • Braun, K. W., Tietz, 2013. Managerial accounting. Pearson.
  • DRURY, C. M., 2013. Management and cost accounting. Springer.
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