What Is an Implicit Cost?

Implicit cost is the total price of those factors of production that the manufacturer itself owns and is used in the production process of the enterprise. It is a cost that is hidden in the total cost of the enterprise and is independent of financial audit supervision. It is the hidden future cost and transfer cost caused intentionally or unintentionally due to the behavior of the company or the employees. It is the sum of the future tense of costs and the transferred cost form. The inconsistency caused by the failure of leadership authority, distorted information and instructions, and inefficiency. Compared to explicit costs, these costs are hidden and difficult to avoid and difficult to quantify.

Hidden cost

What are hidden costs

Hidden cost

Establish a new cost concept

The proportion of hidden costs in the total cost of an enterprise is constantly increasing. To obtain cost advantages, it is more important for the control and management of hidden costs.

2.1.1 Correctly understand hidden costs and establish the concept of effective and ineffective costs

The so-called ineffective cost refers to the cost input that does not help the value-added of the business and the acquisition of profits. Effective cost refers to cost expenditures that have a positive effect on the value-added of the enterprise and the acquisition of profits. Only effective costs are meaningful to the company. Invalid costs generally exist as hidden costs. This requires that companies should try to avoid invalid expenditures in cost management, that is, require all departments to cooperate fully to take business Demand-oriented planning for effective use of costs.

2.1.2 Establish the concept of full staff control

All departments and all employees are cost controllers and profit creators. They must combine professional control and mass control to provide cost education for all relevant personnel, strengthen cost awareness, and enable employees to master more hidden risks. Sexual skills and skills.

2.1.3 Establish the concept of full process control

To firmly establish the concept of "sustainable development", companies must not only pursue maximum current revenue, but also maximize long-term revenue; not only save current costs, but also focus on the impact of current behavior on future costs. In terms of cost management, both explicit costs and hidden costs are equal, with emphasis on prevention and reduction of hidden costs; past costs and future costs are equal, with focus on controlling and reducing future costs. We must not only pay attention to and control the explicit costs such as production costs, sales costs, and capital costs, but also pay attention to and control the hidden costs such as human capital, intangible asset costs, and organizational operating costs.

Optimize process management

In enterprise management, cost control must be taken as an important part of corporate strategic management, especially hidden costs. Nowadays, the problem of waste of time cost is common in enterprises, and the low utilization rate of raw materials can easily cover up the problems of management. The hidden cost to the enterprise is very terrible. Although enterprises are constantly changing and developing, the biggest hidden danger of enterprises is that the processes are not standardized, perfect, and non-standard. Enterprises must consolidate the responsibilities of various executive departments, avoid duplicate and invalid operations within the enterprise, and cancel irrelevant processes and corresponding institutions. Organize process reengineering in a timely manner when there is inefficiency in the process. At the same time, in order to effectively control hidden costs, management needs to be institutionalized, systematic, standardized, and professionalized, and all links in the enterprise's work processes must be well connected. If these are achieved, it will greatly reduce the cost of the enterprise and increase revenue. At present, more and more enterprises also pay attention to the optimization of production processes, which can save a lot of production costs, improve work efficiency, and optimize production processes.

Dynamic control of cost management

In the traditional cost accounting model, although a simple cost budget goal will be initially formulated, more project cost accounting will only audit and calculate the actual incurred costs after the project ends. In fact, this ex-post accounting method does not reflect the existence of hidden costs at all, and of course, it is impossible to analyze whether the project's profit and loss is caused by lax explicit cost control or because hidden costs are not controlled. Therefore, the costing method under the traditional model does not really reflect the true cost structure of the project, it just reviews the project profit and loss status after the project is over. Therefore, in order to avoid the flood of hidden costs, the costing method of the project needs to be changed to decompose the cost indicators according to the actual progress, and the obvious costs and the hidden costs are classified in order to truly and dynamically control and manage the costs.

Strengthen human resources management

The first is to reduce the waste of educational costs caused by non-learning and non-learning; the loss of efficiency caused by the unreasonable professional structure; the waste of high talents caused by the unreasonable mix of talents; Hidden unemployment caused by the establishment of posts. The second is to prevent the employee's motivation from being frustrated and lost due to improper employee motivation. The third is to attach importance to the "knowledge flow" management of enterprises, to realize the sharing of knowledge resources within the enterprise, and to ensure the continuous increase of knowledge capital and the maximum efficiency. The fourth is to establish a mechanism for the joint development of talents and enterprises, accelerate the improvement of corporate employees' capabilities, and cultivate more high-quality talents with future knowledge competition. Fifth, attach importance to the construction of corporate culture and improve employee relations.

Building an excellent corporate culture

The managers of enterprises are more and more aware of the great value of corporate culture, and the operation of enterprises cannot be separated from the construction of corporate culture. An excellent corporate culture is a lubricant for the operation of an enterprise. It can effectively reduce the internal consumption of the enterprise and help improve the work efficiency of the enterprise. In the process of enterprise development, there are always various contradictions and conflicts, and various problems emerge endlessly. Leaders must have a broad mind and give them room to develop and let them play better, while ensuring harmony and unity within the enterprise . With unity, enterprises can be competitive, and their foundations can last forever.