Sheet 27
COST AWARENESS
In private companies where expenditure dictates the amount of profit which, in turn, affects job security and the salary of their employees, it is essential that all operations be cost effective. In the public sector where expenses are budgeted in advance, there is tendency for employees to use up the budget with little regard to cost effectiveness for fear of a budget cut in the following year. To increase the cost awareness of public employees, the following points must be considered.
1 Cost Performance
Every activity has a cost. Most people are aware of this but very few actually realize just how much things cost. To be cost conscious, the employee must be fully aware of the actual cost of the activity in which they are engaged in.
It is also important to review the cost-performance of the activity when it is completed. Before a piece of office equipment is purchased for example, the cost, how often it is anticipated to be used and how effective or efficient its operation might be must all be weighed up in advance.
Each employee must take into consideration how the taxpayer would evaluate the cost of their actions. Would they approve ? How might they explain to the public that the cost is rational ?
2 Alternatives
When cost-performance is reviewed, alternatives to the present methods of operation must be taken into consideration. There are usually several options as how to reach the same goal or perform the same duty. We have to weigh up the costs of present operations and these of the alternatives, how long it will take to accomplish the operation under each and how effective each might be.
3 Incentives for Cost Reduction
One of the reasons why the public sector is not particularly cost conscious is that there are no incentives for employees to save costs. Supervisors must consciously praise employees who takes cost cutting measures. They must consider the cost entailed to the budget and workforce when evaluating the accomplishments of staff. Incentives for tight budgeting such as a carry-over system where savings may be used in the following year need to be introduced. A balance must be struck, however, to prevent employees from becoming overly cost conscious to the point of being too cautious to perform their duties at all.
