McDonald's Cost Control - Essay Example

One of the toughest jobs of a financial manager is cost control. Cost control is an old concept and large organizations usually have specialists for this job. Many organizations employ operations managers to make sure that there is no wastage of resources or operations are not over-utilizing the resources. Since resources are costly, therefore all good companies try to eliminate the wastage of resources. The main focus of large companies is on efficiency. A company is never efficient until it is cost-efficient.

Even allocative efficiency is second to cost efficiency. This makes the cost of controlling a very important job in a large organization. (McDonald's 2010) McDonald’s bigness hinders the organizational ability to control costs from the head office. The company has many smart people to realize that faster than others. This has lead McDonald’s into developing cost control tools that will help the organization achieve its targets of cost control at every branch level in every country.

As a result of this McDonald’s headlined the newspapers around the world and many newspapers wrote that it has earned profit that was far above the expectations of public, analysts and other stakeholders. The result of this boost in profit was effective cost control at McDonald’s. This resulted in extremely high profits for the company. Since profit is calculated by subtracting revenue from costs, any reduction in costs is going to inflate the profit figure. This is what has happened in McDonald’s and the company enjoyed a successful year thanks to the great work done by operation managers and cost control personnel and McDonald’s.

(Baertien & Klayman 2009) One of the ways the cost control personnel have been able to control costs at McDonald’s is through the introduction of a drive-through window and by providing home delivery services. This saves McDonald’s restaurant piles of money internationally. The motive behind using these schemes is to save the cost of serving customers at McDonald’s own branches. If McDonald’s serves a customer at its own branches, it involves various fixed and variable costs.

Fixed costs include the cost of building and maintaining an eating place in the restaurant. These increase the lease charges as the restaurant has to lease a larger place to accommodate customers. Other fixed costs include the cost of building, repair staff, cleaner and increased number of personnel that are there to serve the customers. On the other hand, variable costs include the cost of cleaning dishes, the cost of sauces, lightning and other activities that are provided to the customers to entertain them.

By opening smaller drive-through restaurants and by managing a system of delivering the food to the customer’s own place saves McDonald’s a lot of money. That was one reason why McDonald’s profits were above the expectations of analysts in 2009. (Dopson & Hayes 2008) McDonald’s has also started using advances in technology to reduce costs. This includes surveillance cameras and the use of other devices to reduce employee and customer thefts. In the past, it cost McDonald’s a lot of money in terms of employee theft.

All of those things that were stole by the employees needed replacement and this caused the costs to increase and the company suffered in financial terms. However, the cost management personnel have solved these problems by using advances in technology.  Other initiatives such as using recycled paper and taking up the green initiative have also helped McDonald’s save costs worldwide. By using recycled paper, McDonald’s costs have been halved in packaging and material. All of these declining costs are resulting in ever-increasing profits for the company.

In the decision-making spheres, McDonald’s uses a branch manager who has the authority and power to make all branch-related decisions. In other words, McDonald’s has decentralized or delegated the authority to branch managers concerning the branch decisions. This is helpful in both financial and control terms. In control terms, the decisions made by the branch managers are better, since they are taken by people who are closer to employees and are closer to the action. They are good in financial terms because it allows the top management or people working in the head office to look at the bigger picture and make important strategic decisions rather than controlling the branches of McDonald’s worldwide.

This is one reason why McDonald’s achieve so much success. The management was willing and able to effectively delegate the authority to the right people and enjoyed great success because it leads to better morale levels in the workforce, quick decision making and accurate decision making. (Daft 1994) In the end, it can be concluded that McDonald’s is a model organization for all foodservice businesses to follow. It has not only grown, but it has achieved sustainable growth over the years.

The trend is expected to continue with the advancement in technology and the willingness of McDonald’s management to try to control the overall network of McDonald’s restaurants more efficiently and professionally. In the future, the company would look to delegate further responsibility to people at a lower level of hierarchy to boost their morale and to give them a chance for career development. If all the forecasts come true, we can expect McDonald’s to become a bigger and better organization in the future.

In fact, it is poised to become the biggest food brand in the world.