1.Ch01-Cost Management and Strategy-Edited.pptx

Chapter One Cost Management and Strategy Copyright 2022 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC. Learning Objectives 1 Explain the use of cost management information for each of the four functions of management and...

Chapter One Cost Management and Strategy Copyright 2022 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC. Learning Objectives 1 Explain the use of cost management information for each of the four functions of management and in different types of organizations, with emphasis on the strategic management function. Explain the contemporary business environment and how it has influenced cost management. Explain contemporary management techniques and how they are used in cost management to respond to the contemporary environment. Explain different types of competitive strategies. © McGraw Hill 1-2 Cost Management Information and Cost Management Cost Management Information consists of financial and nonfinancial information that is developed and used to implement the organization’s strategy. Cost management is the development and use of cost management information by the management accountant. © McGraw Hill 1-3 Definition of Management Accounting: a Focus on Strategy Management accounting is a profession that involves partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization’s strategy. © McGraw Hill 1-4 Typical Organization Chart Access the text alternative for slide images. © McGraw Hill 1-5 Four Functions of Management Cost management information is needed for each of the following management functions: Strategic Management. Planning and Decision Making. Operational Control. Preparation of Financial Statements. © McGraw Hill 1-6 Management Functions 1 Strategic management Most important of the management functions. Involves identifying and implementing goals and action plans to maintain a competitive advantage. © McGraw Hill 1-7 Management Functions 2 Planning and decision-making Information is needed to support recurring decisions such as scheduling production, pricing, repairing and replacing equipment. Operational control Information is needed to identify inefficient operations and reward effective management practices. Preparation of financial statements Information is needed to guarantee compliance with regulatory reporting requirements. © McGraw Hill 1-8 The Strategic Emphasis The focus of cost management is on working with management to achieve the organization’s goals, through understanding the organization’s competitive environment and implementing the organization’s strategy to succeed in this environment. This often means using all of the organization’s resources to identify and satisfy the customers’ needs. The strategic emphasis often requires creative and integrative thinking from a cross-functional viewpoint. © McGraw Hill 1-9 Types of Organizations Access the text alternative for slide images. © McGraw Hill 1-10 Changes in the Contemporary Business Environment 1 1. Shift to a global business environment. Economic interdependence and competition. Recent trend to economic nationalism. Tariffs. Uncertainty and volatility. 2. Lean Manufacturing. Inventory reduction and quality control. Flexible manufacturing systems. Emphasis on speed-to-market. © McGraw Hill 1-11 Changes in the Contemporary Business Environment 2 3. Importance of information technology. Increased use of the internet has reduced processing time, increased access to important information, and facilitated information exchange. 4. Focus on the customer. Consumers expect functionality, quality, and innovation. © McGraw Hill 1-12 Changes in the Contemporary Business Environment 3 5. Shifts in management organization. Shift from financial to customer-based measures. The focus has shifted from financial measures and hierarchal command-and-control organizations to nonfinancial measures and flexible organizational structures. 6. Social, political, and cultural considerations. Changes include a more diverse workforce, changes in regulatory requirements, and a renewed sense of ethical responsibility. © McGraw Hill 1-13 How do the Changes in The Contemporary Business Environment Affect Cost Management? The management accountant’s role: Provide strategically relevant cost management information to help the organization keep up with the ever-changing environment. This requires the development of critical success factors (C S F s), measures of performance that are essential to competitive advantage. Management accountants have responded to the contemporary business environment with many Contemporary Management Techniques. © McGraw Hill 1-14 Contemporary Management Techniques 1 1. The Balanced Scorecard and Strategy Map. 2. The Value Chain. 3. Activity Based Costing and Management. 4. Business Analytics. 5. Target Costing. 6. Life-Cycle Costing. 7. Sustainability. 8. Enterprise Risk Management. © McGraw Hill 1-15 Contemporary Management Techniques 2 1. The Balanced Scorecard (B S C). An accounting report that addresses an organization’s performance in four perspectives: financial, customer, internal processes, and learning and growth. The strategy map is a method, based on the balanced scorecard, that links the four perspectives in a cause-andeffect diagram. © McGraw Hill 1-16 Contemporary Management Techniques 3 2. The Value Chain An analysis tool used to identify the specific steps required to provide a competitive product or service to the customer. Helps identify steps that can be eliminated, improved, or outsourced. 3. Activity-Based Costing and Management Activity-Based Costing (ABC) improves the tracing of costs to individual products, services or customers. Activity-Based Management (ABM) is used to improve operational and management control. © McGraw Hill 1-17 Contemporary Management Techniques 8 3. Sustainability means the balancing of the company’s short and long term goals in all three dimensions of performance – social, environmental, and financial. 4. Enterprise risk management is a framework and process that firms use to manage the risks that could affect the company’s competitiveness and success. © McGraw Hill 1-18 How an Organization Succeeds: Competitive Strategy A firm succeeds by implementing a strategy, that is, a plan for using resources to achieve sustainable goals within a competitive environment. Strategy must have a long-term focus and adapt to the changing environment. Cost management is used to develop cost and other information to help an organization achieve its strategic goals. © McGraw Hill 1-19 Michael Porter: Two Competitive Strategies Cost Leadership—outperform competitors by producing at the lowest cost, consistent with quality demanded by the consumer. Differentiation—creating value for the customer through product innovation, product features, customer service, etc. The customer is willing to pay more for these added values. © McGraw Hill 1-20 The Five Steps of Strategic Decision Making 1. Determine the Strategic Issues Surrounding the Problem. 2. Identify the Alternative Actions. 3. Obtain Information and Conduct Analyses of the Alternatives. 4. Based on Strategy and Analysis, Choose and Implement the Desired Alternative. 5. Provide an On-going Evaluation of the Effectiveness of implementation in Step 4. © McGraw Hill 1-21