Innovation Case

YTIL’s Way of Cost and Expense Control

Date: 2015-12-30
View Count: 35

 

Cost and expense control plays an integrated role in the enterprise management system, and is an important means of promoting expense reduction and management efficiency improvement. YTIL (hereinafter referred to as the “Company”) has always attached great importance to cost and expense control, and in particular developed it into a core competency for business development, and established a whole-process control system successfully in recent years. Vertically, the Company’s cost and expense ratios were 62.7%, 56.1% and 58.2%, and management expense ratios 12.6%, 11.4% and 10.8% respectively during 2012-2014, taking on a steady downtrend in general and improving the Company’s management quality effectively. Horizontally, the Company’s cost and expense ratio was 58% in 2014, much higher than the average of Hong Kong-listed peers (62%). The Company has been effective in cost and expense control due to efforts in the following two aspects:

 

I.     Implementing the cost and expense control system featuring “source review, process control and outcome evaluation” practically and carefully

 

1.    Strengthening “business plan and board of directors” double review: In the fourth quarter of each year, the Company would prepare the business plan for the next year in both bottom-up and top-down manners, in which the cost and expense budget is prepared on such principles as zero base and fixed quota, and reviewed at the project company, head office and group levels to strengthen source control. At the beginning of the next year, the Company would review the cost and expense budget of the board of directors of each project company strictly and carefully based on the business plan. The practice of “business plan and board of directors” double review ensures the rationality of the cost and expense budget.

 

2.    Exercising strict control over the implementation process of the cost and expense budget: Costs and expenses within the budget of a project company are subject to “internal control” or “approval” based on amount and importance. For example, a special project with a budget of over RMB1 million should be approved by the head office from design, construction, change, measurement to payment before implementation; all costs and expenses beyond or out of the budget should be submitted to the head office for approval. In addition, production and operation analysis systems have been established at the head office and project company levels to analyze the implementation of the business plan monthly (including the implementation of the cost and expense budget), and identify and correct abnormities timely, thereby ensuring that costs and expenses are controlled strictly on budget.

 

3.    Evaluating the implementation of the cost and expense budget, and giving rewards and punishments accordingly: The Company has included the implementation of the cost and expense budget in the scope of evaluation for the functional departments of the head office and the project companies, increased its weight appropriately to realize the closed-loop management of cost and expense control, and fully motivated the staff to control cost and expense by strengthening incentives and constraints. In recent years, the Company’s cost and expense saving ratios have been over 8%.

 

II.    Tapping the potential of cost and expense control deeply to cut expenditure and improve efficiency based on the practical business situation

 

1.    Reducing capital costs through capital operations: First, we completed overseas financing in exchange for domestic loans of RMB1.7 billion in 2013 and 2014 through our domestic and overseas financing platforms, saving interest expenses of RMB32.26 million; second, we have established a medium-term note program of USD1 billion and a new overseas debt financing platform, and issued bonds of €200 million successfully at a coupon rate of 1.625% only.

 

2.    Reducing taxes lawfully and rationally through tax planning: First, we reduced dividend tax rate from 10% to 5% successfully by restructuring the equity of the Humen Bridge project, saving dividend taxes of over RMB10 million per annum; second, we have secured tax incentives under the China Western Development Strategy in Jinxiu and Cangyu, reducing corporate income tax rate from 25% to 15%, realizing significant tax savings.

 

3.    Reducing overall maintenance costs by applying new technologies: We have introduced and applied a new pavement crack sealing material, an inertial navigation fiber optic gyroscope, etc. successfully through the procedure of “pilot application—effect evaluation—extended application”, reducing road maintenance and bridge testing costs effectively.

 

4.    Reducing purchasing costs through centralized purchasing: We have improved bargaining power and reduced purchasing costs effectively by purchasing working clothes, insurance and other bulk commodities / services for the staff of the affiliated companies centrally.

 

Cost and expense control is an everlasting topic in business management. Although effective cost and expense control measures have been taken, we should keep tapping the potential of cost and expense control by focusing on the following:

First, fully review and continually optimize the Company’s cost and expense control system, and further define cost and expense control measures, persons responsible, etc. to establish a cost and expense control mechanism featuring “whole-process coverage and total participation”; second, stick to the principle of “whole-life maintenance cost control”, and strengthen preventive maintenance, and the extension and application of new technologies, processes and materials to improve the overall efficiency of road maintenance; third, implement fixed post and staff quota management strictly to control the growth of labor costs rationally, and also strengthen the application of automation technologies and equipment (e.g., automatic card dispenser), and the building of IT business systems to improve efficiency and save labor; and fourth, develop innovation capabilities, and tap the potential of cost and expense control deeply through business model, technology and management innovation.

 

There is always upside potential for cost and expense control. Therefore, we must keep optimizing the management framework of the cost control system, establish a multi-dimensional, multi-perspective cost control mechanism, and build cost and expense control into a strong core competency for business development based on a unified understanding and innovation philosophy, thereby laying a solid foundation for the sustainable and healthy development of the Company.

 

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