The managing of a company's cost structure is consciously choosing to invest in selected expenditures that will achieve a specific revenue system. This is a proactive process, whereas cost cutting is a reactive process. Managing costs is inherently more effective. This effectiveness involves doing the things that optimize the results of a company's overall activities. Reactive cost cutting may add some efficiency, but it does not optimize the company's business process or its results.
Cost management is a strategic process that focuses on the customer and on profitability.
This is the most critical item in cost management. Many companies do not have accurate information on what their true costs are. Next, a company must identify the specific costs that produce its revenue stream. Finally, a company must identify overhead costs and costs not directly linked to revenue generation. Salesmen's commissions can easily be linked to revenue, but this link is not as direct for office supplies.