Cost Management

This random musing came about because of a recent incident involving my girlfriend having to leave her harddisk containing research data with her Oxford department and not being able to return to Oxford to retrieve it because we were going back to Singapore from London. Eventually, the department generously sent out the harddisk by first class mail to London so that we could pick it up just before we returned to Singapore. The postage was paid for entirely by the department since it was work-related; no questions asked.

It made me reflect on our Singapore’s system of cost management principle and so-called ‘prudence’. I realised how we are often seen as ‘stingy’ even though we are trying to exercise or practice the principle of prudence and how this ‘stinginess’ permeates down all the way through organisations particularly government departments. I think one of the problems is that we think of cost management as almost an individual responsibility and that ‘stinginess = prudence’. In fact, if we were asked to prescribed practices  to ensure adherence to policies worded the 2 different ways, chances are that they will be more or less similar. In most Western economies and organisations, cost management is the responsibility of the management setting down the policies and guidelines; control should be really questioning on the basis of principles of expenditure rather than checking line transactions based on operations – essentially, leaving the accounting of operations to those who know best.

At the end of the day, it is a matter of how much the finance needs to dive into the companies’ operations in order to check through, process, and account for the costs incurred. It wouldn’t make sense for them to dive so deep as to disrupt the course of business operations or to set down control measures that end up hindering actual operations. Yet it is important for finance to know the operations deep enough to perform their role well. Thinking deep into the principles and then accepting a range of practical expenditure outcomes is vitally important nevertheless. Cost management must not get too far down the chain affecting the functioning of the working level.

We need to equip our ‘government’ workforce with the right approach towards cost management to help them understand that prudence is neither penny-pinching nor making sure ground staff write comprehensive reports justifying transactions. It is setting up a good set of principles by which budgets are justified by and then leaving the ground level to make use of the budget as they deem fit.