STRATEGIC COST MANAGEMENT

Overview of Cost Management and Strategy

Strategy

• is a set of policies, procedures and approaches to business that produce long-

term success. Set of goals and specific action plans that if achieved, provide the desired
competitive advantage. (Cabrera 2019)

• Is a plan , an integration of an organization’s important objectives, policies and

programs into a cohesive whole. It marshalls and allocates the organization limited
resources into a viable posture to best achieve its goals considering its weaknesses and
strengths relative to expected opportunities and threats in the future environment.
(Mejorada, 2005)

• Are plans for achieving organizational goals (Stevenson & Chuong,2014)

• Is the pattern of decisions that determines and reveals an organizational goals, policies,
and plans to meet the needs of its stakeholders.(Evans & Linsay, 2019)

while

Strategic Management

• Involves the development of sustainable competitive position.(Cabrera, 2019)

• Dynamic process that is full of commitment to decision and actions to deliver strategic
competencies to achieve the desired results in terms of corporate profitability and growth.
(Pereda, et al 2015)

• is all about identification and description of the strategies that managers can carry so as to
achieve better performance and a competitive advantage for their organization.

(https://www.managementstudyguide.com/strategic-management.htm)

● the management of an organization’s resources to achieve its goals and objectives. Strategic
management involves setting objectives, analyzing the competitive environment, analyzing the
internal organization, evaluating strategies, and ensuring that management rolls out the
strategies across the organization.

Strategic Cost Management

 • Involves the development of cost management information to facilitate the principal
management function which is strategic management.

• The development of cost management information to facilitate the principal management

function, strategic management.

• Strategic cost management is a program established businesses use in order to regularly identify

and analyze cost drivers to lower costs and maximize total value. This type of program is
necessary for creating budget parameters and a structure for purchasing. By implementing a
strategic cost management program, businesses can not only lower their costs but also create a
strategic competitive advantage.

Cost Management Information

• Is the information the manager needs to effectively manage the firm could it be profit-oriented
as well as not-for-profit organization. This includes both financial information about cost and
revenues as well as relevant nonfinancial information about productivity, quality and other key
success factors for the firm.

• Is a critical factor in the effective management of a firm or organization.

Cost management

• Is the practice of accounting in which accountant develops and uses cost management
information

• the process of planning and controlling the budget of a business.

• is a form of management accounting that allows a business to predict impending expenditures

to help reduce the chance of going over budget. 

• is the process of effectively planning and controlling the costs involved in a business. It is
considered one of the more challenging tasks in business management. Generally, the costs or
the expenses in a business are recorded by a team of experts using expense forms.The process
involves various activities such as collecting, analyzing, evaluating and reporting cost statistics
for budgeting. By implementing an effective cost management system, a company’s overall
budgeting can be brought under control.

• also considered a form of management accounting that helps to identify future expenditures in
a business to reduce budget overages.

• Cost management is the process by which companies control and plan the costs of doing
business. I

• a method of reducing operating or production expenses in order to provide less expensive

products or services to consumers.
 •  the main focus of managerial accounting that helps a firm forecast future expenditures in an
effort to reach their budgeting goals. This process is typically divided into three main phases:
planning, implementation, and final analysis.

• Cost management is employed by many businesses as an integral part of business management.

• When cost management is applied to a specific project, the expected costs in the
business are analyzed in the beginning phase of the planning period. The project manager then
approves the predicted expenses in purchasing the materials required for the project.

Users of cost Management Information

• All organizations: business firms, governmental units. And not-for-profit organization.

Uses of Cost Management Information

1. Strategic Management
▪ Making sound strategic decisions regarding the
a. choice of products,
b. manufacturing methods
c. marketing techniques and channels
d. other long-term issues.

2. Planning and decision making

▪ To support recurring decision such as
a. Replacing and maintaining equipment
b. managing cash flows
c. budgeting raw materials purchases
d. scheduling production
e. Pricing and distribution of products to customers

3. Management and operational control

▪ To provide a fair and effective basis for identifying inefficient operations and to reward
and motivate the most effective manages.
▪ Operational control-
▪ Management control-

4. Reportorial and Compliance to Legal Requirements

a. Financial reporting requirements to:
▪ regulatory bodies:
SEC
BIR
Other relevant government authorities and agencies
Role of Management Accountant in Strategic cost Management

• Cost Management
Develop and analyze cost management information and other accounting information
• Management Accounting
▪ Concerned with providing information to managers who direct and control
operations
a. Scorekeeping or data accumulation
b. interpreting and reporting information
c. problem solving

▪ Use information in performing administrative functions:

a. Planning
b. Controlling
c. Decision making

Cost accounting vs. Cost management

Cost accounting is a systematic set of procedures fro recording and reporting measurements of the cost
of manufacturing goods and performing services in the aggregate and in detail. It include methods for
recognizing, classifying, allocating, aggregating and reporting such costs and comparing them with
standard costs.

Cost management needs the output of cost accounting . Its purpose is to provide managers with
information which aids decision. There are no generally accepted principles which specify how
management accounting information is to be reported. While systems such as direct costing and
standard costing exist in management accounting, each accounting reports should be tailored to the
needs of the decision and the decision maker. The most effective system result when the manager-
decision maker and the accountant work together until the accountant understands the decision to be
made and the manager understands the source of the information that the accountant will report.

Managers use cost management information to choose strategy, to communicate it and to determine
how best to implement it. They use their information to coordinate their decisions about designing,
producing and marketing a product or service.

Strategic decision and the cost of management accountant

A company earns profit by attracting customers willing to pay for the goods and services it offers.
Customer compare goods and services offered by a company to the same goods and services offered by
other companies. The key to company’s success is creating value to customers while differentiating
itself from competitors . Identifying how a company will do this is what strategy is all about. However, a
chosen strategy is only good as how effectively it is implemented. The management accountant provides
input that aids in developing strategy , building resources and capabilities, and implementing strategy.
To understand the management accountant’s role, we must first understand the manager’s tasks in
more detail.