Corporate cost management Week

Business Excellence through Cost Management

C A.N.J.Thomas

1. Objective :

The Objective of Corporate Cost Management Week, I understand, is to spread the message of cost management, which is essential to achieve business excellence. It is expected to discuss the best cost management practices across various sectors in the economy and thus to create awareness about inculcating cost culture, cost consciousness and cost discipline in organizations.

Today businesses operate in a more complex, dynamic and less predictable environment. Business Models are constantly being reviewed for their sustainability and alignment with new strategies to achieve growth in turbulent times.

Professionals, especially Cost and management Accountants have a great and significant role in initiating and developing business models and strategies and bring about considerable and sustainable cost economics in an ethical manner.

The MSME sector is one of the key sectors of the economy which provides maximum employment and is a major contributor to the economic growth. The cost management at MSMEs involves establishment of good quality systems, good manufacturing practices and continuous improvement initiatives, aiming at increasing productivity, efficiency and cost effectiveness

2.Business Excellence through Cost Management in MSMEs

IntroductionThe MSMEs are playing a vital role in the development of both developed and developing countries. In India, these industries are considered to be the backbone of the economy. Today, it accounts for nearly 45 per cent of the gross value of output in the manufacturing sector and over 40 per cent of the total exports from the country. In India, they are vital from the point of view- their overall contribution in terms of number of units, production, exports, employment and their spread in rural areas. These industries are considered to be the engine of growth, the world over.

These industries stimulate:

• innovative ideas, • business methods and • entrepreneurial skills; • they are flexible and • can adapt quickly to changing market demand and supply

situations; • help in diversifying economic activity, and • make a significant contribution to industrial development and

exports.

Therefore, the establishment and promotion of MSME’s across the globe, has assumed strategic role and importance.

3.Definition of MSMEs in India

Earlier, industrial units in India were classified as small scale and large scale units, based on investment ceiling on

the installed plants and machinery. Within small-scale sector, there were sub-classifications such as ancillary units, tiny units, women enterprises, and

small scale services and business units. The medium scale units were not earlier defined in India.

However, following the enactment of Micro, Small and Medium Enterprises Development (MSMED) Act, 2006,

enterprises in India are being broadly classified into micro units, small units, medium units and large units.

Manufacturing sector service sector

Enterprises Investment in plant and machinery

Proposed to be revised

Enterprises Investment in equipment

Micro Less than Rs.25 lacs

Less than Rs.50 lacs

Micro Less than Rs.10 lacs

Small Over Rs.25 lacs but not exceeding Rs.5 crs

Over Rs.50 lacs but not exceeding Rs.10 crs

Small Over Rs.10 lacs but not exceeding Rs.2 crs

Medium Over Rs.5 lacs but not exceeding Rs.10 crs

Over Rs.10 lacs but not exceeding Rs.30 crs

Medium Over Rs.2 lacs but not exceeding Rs.5 crs

Classification of MSMES

4.Role MSMEs at Global Level

While looking at the role of MSMEs in the global economy, these industries are playing a significant role as they are vital from the revenue and employment generation point of view, particularly in emerging economies.

In OECD economies, MSMEs account for over 95% of the firms, 60 to 70% of employment, 55% of GDP and generates the major share of new employment.

In developing countries like ours, more than 90% of all firms, outside the agricultural sector, are MSMEs, generating a significant portion of GDP.

In half of the high income economies, formal MSMEs employed at least 45% of the workforce, compared to only 27% in lower income economies, which further highlights their importance in economic development and job creation.

Globally, MSMEs employ one-third of the working population.

MSMEs have been globally considered as an engine of economic growth and as key instruments for promoting equitable development.

5.National scenario

MSME can be rightly called as the backbone of the GDP of India.

The MSME sector in India is growing at an exceptionally fast rate. It is proving to be beneficial to the Indian Economy.

MSME sector is one of the key drivers for India’s transition from an agrarian economy to an industrialized economy.

Following are some of the current figures related to the MSME sector in India:The contribution of the MSME sector to the entire

output of the country is 40%.Currently, there are over 11 million MSME units in India

that produces more than 8000 products.90% of the Industrial Units in India belong to the MSME

sector.These MSME units contribute 35% to the Indian

Industrial Export. It accounts for 29.8 million enterprises in various

industries, employing 69 million people.

It includes 2.2 million women-led enterprises (7.4 percent) and 15.4 million rural enterprises (51.8 percent).

Even though 94 percent of MSMEs are unregistered, their contribution to the India’s GDP has been rising consistently at 11.5 percent a year, which is higher than the overall GDP growth rate.

In recent years, the MSME sector has consistently registered higher growth rate compared with the growth rate of overall industrial sector.

With its nimbleness and dynamism, the sector has shown worthy innovativeness and adaptability to survive the recent economic downturn and recession.

Besides helps in discouraging monopolistic practices of production and marketing, these industries dynamically contribute to the growth of national economy along with opportunity creation for accumulation of foreign exchange reserves.

In India, this sector is highly heterogeneous in terms of the size of the enterprises, variety of products and services, and levels of technology.

These industries not only plays a crucial role in providing employment opportunities at comparatively lower capital cost than large industries but also helps in industrialization of rural and backward areas, reducing regional imbalances and assuring more equitable distribution of national income and wealth.

MSMEs complement large industries as ancillary units and contribute enormously to the socioeconomic development of the country.

In India too, MSMEs play an essential role in the overall development of the economy Following are some of the factors that have contributed to the growth of MSME sector in India:• To start and maintain these units, minimal investment is required.• These SME units are now being funded by many government and private

banks.• The SME sector is one of the greatest contributors of domestic

production as well as the export earnings. Many major mergers have taken place recently.

• MSME units in India are being funded by foreign and local fund provider.• The advancement in technology has also contributed highly to the

MSME sector.• There are numerous business directories and trade portals available

online that contains a rich database of manufacturers, sellers and buyers.

Strengths of India for development of MSMEs

Abundance of natural resources Extensive Industrial infrastructure Large pool of technical manpower Highly capable entrepreneurs and managers Low cost of labor

India’s Competitive Advantages

We have the advantage of indigenous sources of raw materials at much cheaper rates than any part of the world.

We pay ¼ th or 1/5 th of the labor cost compared to South East Asia, USA & Europe.

India is using same type of plant & machinery and technology as used anywhere else in the world.

We have world class engineers and managers who have proved their mettle in the world and are heading some large international companies.

The great paradox

In spite of so many advantages, our SME’s are not able to compete on quality and cost with SMEs in other countries

  Total No# of Average value of

  SME’s

export per company in

USD

Singapore 9,296 6.74 million

Malaysia 28,840 2.05 million

South Korea 2.9 million 45,000

India 26 Million 4000

A. COST MANAGEMENT

To improve quality and products/services of MSMEs and make them cost competitive, active involvement of professionals, especially Costs and management accountants in the working for MSME is the call of the day.

Major areas of contribution are discussed hereunder.

Strategy for Growth:

Strategic Management is the process of formulating strategies and strategic plansand managing the organization to achieve them.

Strategy is defined as, 'where the organization wants to go to fulfill its purpose and achieve its mission, itprovides the framework for guiding choices, which determine the organization's nature and direction and,these choices relate to the organization's products or services markets, key capabilities, growth, returnon capital and allocation of resources."

A firm develops its strategy by matching its core competence with industry opportunities.

Strategy formulation is a process that senior executives use to evaluate a company's strengths and weaknesses in light of the opportunities and threats present in the environment and then to decide on strategies that fit the company's core competencies with environmental opportunities.

There are three distinct levels of business strategy, which are as follows.

a. Strategies at the highest level of an organization, known as Corporate Level Strategies basically deal with the allocation of resources among various businesses or divisions of an enterprise.

b. Strategies, which are at the level of a particular business or division deals with primarily with the thrust of competitive action in that business alone and are known as Business Level Strategies.

c. Strategies, which are limited to the particular function of a business are known as Functional Level Strategies.

Concept in Strategic Management:

Distinctive Competence:It means working out what the organization is, best at and what its special or uniquecapabilities are. In other words it means 'Core Competence'.

Focus:It means the identifying and concentrating on the key strategic issue.

Sustainable Competitive Advantage: Firms should create value for their customers, select markets where they can excel and present a moving target to their competitors by continually improving their position. Inbound Logistics: This represents the reception, storage and internal transport of inputs to the product.

Inbound Logistics: This represents the reception, storage and internal transport of inputs to the product.

Operations:The transformation of those input in the final products.

Outbound Logistics: The collection, storage and distribution of the produce to buyers.

Marketing and Sales: This involves, persuading buyers to purchase the product and making it possible for them to do so.

Service:The provision of service to enhance or maintain the value of the product.

Some Tools of Strategic Cost Management Life Cycle Costing:

The concept of life cycle costing ensures better allocation of costs during the pre and post manufacturing periods. Acquisition costs, i.e. costs of research, design, testing, production, construction or

purchase of capital equipment. Transportation, maintenance and handling cost of capital equipment. Expenses like energy costs and other utility costs. Cost of training of the staff Other costs like inventory holding costs, spare parts, warehousing costs, technical know

how costs

Life cycle costing estimates and accumulates costs over a product's life cycle in order to determine whether theprofits earned during the manufacturing phase will cover the costs incurred during the pre and post manufacturingstages.

Target Costing:

Target Costing can be used effectively as a Strategic Cost Management tool. For implementation of this technique, a target price, which customers can pay is determined in advance along with the target profit, which the business organization wants to earn.

The target profit is deducted from the target sales price to obtain the target costs. The target costs are compared with the actual estimated costs and if the actual estimated costs are more than the target costs, it is analyzed further and efforts are made to ensure that the actual estimated costs are within the target costs. Firms that undertake target costing have to put in place an exhaustive market research to identify what their customers want and how much they are willing to pay for that.

For achieving impressive results by using the Target Costing, the following techniques are normally used.

Tear - Down Analysis:

This analysis is also known as Reverse Engineering involves examining a competitor's product in order to identify the opportunities for product improvement and/or cost reduction.

The competitor's product is dismantled to identify its functionality and design and to provide insights about the processes that are used and the cost to make the product. The aim is to benchmark provisional product design with the design of the competitors and to incorporate any observed comparative advantage of the competitor's approach to the productdesign.

Value Engineering: Value engineeringalso known as value analysis is a systematic interdisciplinary examination of factors affecting the cost of a product or service in order to devise means of achieving the specifiedpurpose at the required standard of quality and reliability at the target cost.

Kaizen Costing:

Kaizen is the Japanese term for continuous improvement: "gradual, unending improvement, doing little things better, setting and achieving ever-higher standards".Kaizen costing reduces the cost of producing existing products by finding ways to increase the efficiency of the production processes used in their manufacture.

Kaizen Costing has also been defined as a method of costing that involves making continual, incremental improvements to the production process during the manufacturing phase of the product/ service lifecycle, typically involving setting targets for cost reduction.

For doing all these things, it is of utmost importance that the old mind set should be changed and more professional approach is to be adopted in the Management of these enterprises.

Process of Strategy Formulation

CompetitorCustomerSupplier RegulatorySocial / supplier

Environmental Analysis

Technology Know howManufacturing Know howMarketing Know howDistribution Know howPolitical Logistics Know how

Internal Analysis

Opportunities & ThreatsIdentify Opportunities

Strengths & WeaknessesIdentify Core Competencies

Fix Internal Competencies With external opportunities

Firm’s Strategies

Human Resources Strategies:

Indian SMEs are highly promoter centric. They usually hesitate to hire professionals and hence thequality of manpower in the organization is questionable. The Promoters normally do not want to dilute their stake in the fear that they will not be able to control the business and hence they are chronically undercapitalized.It is of utmost importance that the entrepreneurs come out of this mind set and start having a close look towardsthe quality of their manpower.

A long term strategy is essential to create a talent pool in the organization and everyeffort should be made to retain them.

Financial Strategies: Indian SMEs are traditionally focused on creating financial structures for tax efficiency rather than business efficiency.It is the need of the hour that the SMEs planning to seek external funding to finance their next level of growth need to focus on developing financial structures for business efficiency.

Manufacturing Strategies: The SMEs primarily manufacture sector specific components such as auto ancillaries and equipment and supply these to tier -1 companies which perform the fabrication and assembling tasks. It has been observed that Indian SMEs in the manufacturing sector lag behind their competitors from the technology perspective. The production methods adopted by them are also obsolete and wasteful.

Marketing Strategies: MSMEs have to be more aggressive in marketing their products and services. Substantial investments will have to be made in the overseas market research and also for designingsuitable distribution channel in the foreign market. Domestic market is also very vast and scattered and here alsosubstantial investments are required to tap the same. More consumer centric approach is required in this field. Technology Development Strategies

The global economy is currently undergoing fundamental transformation in which technology plays a key role. Usage of technologies is revolutionizing the rules of business, resulting in structural transformation of enterprises. Modern businesses are not possible without help of technology, which is having a significant impact on the operations of Micro Small and Medium scale Business.

Strategies FOR Integrated risk management Risk is inherent for MSMEs and risk management must be identified as a core competency. The goal should be to understand, measure and monitor the various risks that arise. Risk here means the expected potential loss in future. The best method to manage risk is to align the risk management practices with corporate strategy by using both real and financial methods.

The MSMEs are exposed to the following risks:o Credit Risko Market Risko Operational Risko Product Risko Macro Economic Risko Technology Risko Reputation Risko Legal Risk

Credit Risk Management for MsmeThe SME must do an ongoing monitoring of a clients creditworthiness and credit exposure, maintain credit rating and determine credit terms and conditions.

Market RiskGood understanding of hedging strategies, transfer pricing, compliances, policy and structures are advocated. The most commonly used instrument is the foreign exchange forward contract.

Operational Risk Management for MsmeOperational risk is risk arising due to operations. This risk is the risk of direct and indirect loss resulting from failed or inadequate processes, systems or people or from external events. Such a risk can be managed by Audit oversight, critical self appraisal, risk indicators and formal quantification. In the Audit oversight, the external audit department reviews business process to identify industry weaknesses. The critical self appraisal process is highly recommended for MSMEs as it involves every each department trying to submit a subjective evaluation of the sources of operational risk, their expected frequency and costs associated with them.

Product RiskThis originates from superior products replacing those offered by the MSME. This is possible due to economies of Scale and Scope, Superior logistics and Supply chain management etc.

Macro Economic RiskThe MSMEs which are into exports are extremely vulnerable to currency fluctuations, interest rate regimes and inflation risk. This can be managed with natural hedges.

Technology RiskThis risk is very important since most MSME are vendors/ solutions provider to large firms which are exposed to technology risk/ risk of obsolescence. This can be best managed by using flexible production processes and keeping an eye on the changing business paradigms and thus forecasting the expected technological changes.

Financial Statement Based Risk AssessmentThe Financial Statements can be effectively used to assess the risk exposure to MSME. For instance the Income statement will show the vulnerability of the firm to a certain type of raw material which should be effectively procured to maintain profitability and competiveness. Similarly the quality of the earnings of the MSME can be assessed by comparing its PAT and the Cash generated by operations.

Balanced Scorecard for Growth The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals.

The Balanced Scorecard was originally proposed as an approach to performance measurement that combined traditional financial measures with non-financial measures to provide managers with richer and more relevant information about organizational performance, particularly with regard to key strategic goals.

In order to make rational decisions about organizational activity and not least set targets for those activities, an enterprise should develop a clear idea about what the organization is trying to achieve (Senge 1990, Kotter 1996).Accordingly, the most effective Balanced Scorecard design processes use the creation of a strategic destination statement describing, ideally in some detail, what the organization is likely to look like at an agreed future date (Olve et al. 1999;Shulver et al. 2000). In many cases, this exercise builds on existing plans and documents - but it is rare in practice to find a pre-existing document that fully serves this purpose within an enterprise.Each company should determine its own aims and measures connected within an area of its activity.

B.QUALITY Reasons for poor quality and competitiveness Lack of interest by the Owner/CEO’s in quality improvement. Departmental focus of the company. Inefficient system of maintenance of Plant and Machinery. Poor technical discipline Lack of organized system for quality improvement. Poor house-keeping and non-attention to various kinds of waste in the

company. These are explain in the subsequent slides Involvement of CEO• This is beigest single cause for comparatively poor quality and cost competitiveness. • Most CEOs consider Quality Control department as a minor functional group, and leave it to a junior manager/engineer. • This is due to definite reasons, which are explained in the following slides.

Reasons for lack of interest in quality by the CEOs. There is a misconception among managers particularly in Small Scale Units, that quality improvement efforts affect productivity and adds extra costs, making the products noncompetitive. A number of studies abroad and recently carried out even in India, has broken this myth and shown the opposite effect. The studies have shown that planned quality improvements, not only enhances the product quality, but also results in cost savings, which helps the bottom-line of the company. Present system of Management Most companies are managed by through various functional departments. The departments mainly focus on the criteria, based on which their performance will be judged.

This is illustrated in following slides.

Productioni. Normally concentrates on maximizing the quantitative output of

the product. Even when there is sufficient stock of unsold goods, the production will continue.

ii. They will tend to approve deviations in the specifications which may have some impact on product quality or continue production even when some specified process conditions are not fully complied with.

Marketingi. Normally concentrates on fulfilling or even exceeding their

allotted targets by giving all kinds of incentives and concessions with in the power of the marketing executives.

ii. Some times, they may even promise tight delivery schedule to get a large order. This may necessitate the Production to put personnel on overtime or resort to emergency purchase of material at higher cost.

iii. Such orders may cause loss to the company rather than profit.

Material Managementi. Focuses on saving on cost of purchased material by pressurizing the

vendors. ii. The vendor may accept the order at lower price, because he may be

short of orders at that time. However since he is not getting much margin on this order, he will give it a low priority and there is a strong possibility of delayed supplies, which may result in stoppage of production or buying the part on emergency basis by paying a higher price.

iii. Both eventualities may cost more than the anticipated savings due to lower purchase price, thus eating into profitability.

Equipment maintenancei. Normally Equipment Maintenance department is not given its due

importance. ii. Generally there is a tendency that if a manager is not dynamic

enough to get higher production, he is shunted to maintenance. iii. Because of his low profile, he may not be able to resources or money

to ensure planned preventive maintenance, which may need shut down of some machines affecting overall production schedule and waste due to idle machines.

Quality Control departmenti. This department is mainly responsible for:ii. carrying out inward goods inspections, stage inspection and

final inspection. iii. Monitoring process control in production processes. iv. Carrying out various tests required in their laboratory. v. Very rarely it takes up quality improvement project or

analyzing the causes of defects occurring in the production.

Lack of technical disciplinei. Non adhering to the tolerances in the drawing or the

specifications by the operators or giving deviations against the tolerances specified in the drawings, to meet the delivery schedule. This is likely to affect the quality of the component or assembly. Interestingly, such deviations are given by the senior engineers, without any written authorization.

ii. Taking liberties with the plant operating instructions given by the plant supplier, often with tacit approval of the production manager.

iii. Non adherence to preventive maintenance schedule recommended by the supplier of plant and machinery.

Efforts required to improve Quality and reduce cost by various departments are given on the following slides

Production Improve general house-keeping of production area. Maintain proper documentation system of standards, drawing and

specifications. Establish Process Planning section for developing process procedure,

Develop tools. Jigs & fixtures. Conduct of process capability studies of important machines Institute process controls to ensure that products conform to

specifications. Ensure proper maintenance of plant and machinery. Material Management Establish vendor evaluation system and their empanelment Developing specifications and acceptance criteria to be given to the

vendor with orders. Arranging proper inspection of incoming material though QA group. Carryout annual performance evaluation of vendors. Planning optimum inventory level by shortening the procurement

cycle. Proper storage and maintenance of procured materials.

Quality Assurance Inspection of incoming martial, in-process inspection and final

inspection and generating data on trend of rejections for the information of the management.

Checking effectiveness of process control Assisting production in analyses of processing defects to find the

root causes and taking corrective actions. Determining the cost of poor quality in the company in financial

terms and submission of report to the management. Implementation of quality improvement plan

The changes in the organizational procedures discussed so far cannot be implemented by SMEs by themselves. They will need external expert assistance to plan and implement the new strategy for reorganization of the company and taking up quality improvement projects.

They are advised to select a competent consultancy organisation having good knowledge in the domain in which the company is operating. There is risk in approaching private consultants, who may promise quick results, but may not be able to deliver. It is advisable to approach reputed non- profit organisations who will be more reliable and economical, being quality promotion bodies.

Methodology of organizing Quality improvement projects.

Request consultancy organization to conduct an awareness seminar for the Management and senior staff of the company on strategy for quality improvement and cost reduction.

Arrange a diagnostic study by the consultants to identify the weaknesses of the company and major areas of waste.

The diagnosis should also assess rough estimate of cost of the waste due to poor quality management.

After diagnostic study, the management should have detailed discussions with the consultancy organisation about taking up a pilot project for quality improvement and cost reduction.

Define the scope of the project which includes training of staff and hand holding during implementation of the project.

It should be clearly understood by the management, that actual implementation of the project will be carried out by a selected team from the company. The consultants will provide guidance at every step. The CEO will have to be fully involved and help in solving operational problems faced by the project team.

Acceptance of the project with well defined scope and the financial terms and signing of the contract.

Evaluate the results after completion of pilot project and plan further action

Various measures undertaken by the government for the promotion of MSMEs in India

i. In order to reduce the credit gap to MSME, Scheduled Commercial Banks (SCBs) are to be directed to maintain minimum 22% in their outstanding credit growth to MSME sector during the first two years of the 12th Five Year Plan and further minimum amount of 25% during the remaining three years of the 12th Five Year Plan.

ii. The focus of the 12th plan on MSMEs is that Banks should achieve 10% increase in new micro enterprises borrowers on year to year basis. As a Subset, banks should add at least 12 new MSMEs in their semi-urban and urban branches.

iii. Availability of land for MSMEs has to be ensured. State governments may earmark at least one industrial estate in each block. Government may identify barren lands and allot it to MSMEs at affordable price or set up industrial units in that places.

iv. Govt. Initiatives in 12th five year plan for MSME Sector: The BSE and NSE got the approval for MSMEs platforms from the SEBI in order to enable these enterprises to raise funds from capital markets.

v. To achieve the overall target set by the Prime Minister’s National Council on Skill Development, Ministry of MSME and other agencies conducted the skill development programmes for 478,000 people during 12th five year plan. However, during 13th plan , the Ministry aims to provide training to 572,000 people through its various programmes for development of self employment opportunities as well as wage employment opportunities in the country.

vi. To improve the productivity, competitiveness and capacity building of MSMEs, the Government of India has adopted a cluster based approach. During Apr-Jan 2012, the government has taken 8 new clusters for diagnostic study, 5 for soft interventions, and 4 for setting up of common facility centres. Till Jan 2012, the government has taken a total of 477 clusters for diagnostic study, soft interventions and hard interventions and 134 infrastructure development projects.

vii. In order to lead focus on government lending to MSMEs, the government constituted a committee in 2009 under the chairmanship of T.K .A. Nair, which on the basis of its recommendations made it advisable for the SCBs that share to micro enterprises in MSE lending should amount to 60 percent.

viii. The government under its procurement policy mandates that all the central minsters/ departments / central public sector undertakings shall procure a minimum of 20 percent of their annual value of goods and services required by them from MSEs.

ix. The ministry of MSMEs has adopted a cluster approach for holistic development of MSE in a cost effective manner to build capacity of MSMEs for common supportive actions, soft interventions. Hard interventions are taken up to create/upgrade infrastructure facilities and setup common facility centres in existing or new clusters.

x. Another important scheme credit linked capital subsidy scheme foe MSMEs was launched in order to facilitate the upgradation of technology to MSEs by providing 15 percent capital subsidy (maximum upto 15 lakh) for purchase of plant and machinery. Maximum limit of eligible loan for calculation of subsidy under the subsidy scheme is Rs 100 lakh.

MSME rating initiativesAll the general-purpose rating agencies in India, such as, CRISIL, ICRA, CARE, Fitch India and Brickwork , ONICRA, SMERA offer SME rating service.SME rating is an independent and comprehensive assessment of the overall conditions of the SMEs. Rating agencies primarily consider business risks, management risks and financial risks of an SME unit while awarding a rating grade. The benefits of SME rating that accrue to the SME units may be highlighted as:a an independent third party evaluation adding to SME's credibilityb easy access to funding and at favorable termsc credibility and confidence building with business partnersd scope of self-correction and selfimprovemente enhanced visibility through publication of rating agency websitesf wider recognition and acceptanceg introduction of good governance practices

SME ratings not only serve SME units, it also helps banks in many ways. It facilitates pricing of loan products at attractive terms. It is also useful in compliance with regulatory and capital adequacy norms.

Conclusion

Thus MSMEs play a vital role as they promote growth and development of the economy, reduce rural unemployment, regional disparities. MSMEs contribute significantly to the economic activity in almost every country of the world. Indian MSMEs are therefore of no exception.

The performance of MSMEs has a determining significance for Indian economic growth due to their substantial share in enterprises, employment, and production and value addition besides being one of the important foreign exchange earner. However, in spite of their vital significance, these industries face various Challenges as mentioned which impede their growth.

Need of Cost Accountants Contributions for growth of MSMEs

Cost accounting function can have a pervasive influence in the MSMEs.

In the competitive and globalised trend, cost control and quality assurance becomes an important element of strategy as unit margins shrink and new products and applications are harder to find. Cost Accountants can help the SME sector in managing costs effectively and thereby establish a competitive edge to become world-class players.

The responsibility of the cost accounting function is great, for the cost accountant's recommendations ultimately have a direct impact on company operations and overall profitability.

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