1-Overview-of-Cost-Management-Strategy.pdf

OVERVIEW OF COST MANAGEMENT & S T R AT E G Y CHAPTER 1 INTRODUCTION Cost management has become increasingly crucial, vital, and dynamic because of the following: Growing pressures of Trade wars among global countries competition...

OVERVIEW OF COST MANAGEMENT & S T R AT E G Y CHAPTER 1 INTRODUCTION Cost management has become increasingly crucial, vital, and dynamic because of the following: Growing pressures of Trade wars among global countries competition Technological Changes in innovations business process  Business managers must think and act competitively and in doing so requires a strategy. Strategy – a set of policies, procedures and approaches to business that produce long-term success. Strategic Management – involves the development of a sustainable competitive position. Strategic Cost Management – involves the development of cost management information to facilitate the principal management function which is strategic management.  COST MANAGEMENT INFORMATION This is a critical factor in the effective management of a firm or organization. This is the information that the manager needs to effectively manage the firm. This includes both financial and non-financial information.  COST MANAGEMENT This is the practice of accounting in which the accountant develops and uses cost management information. It is not enough to emphasize only on financial information; importance should also be given to non-financial and long-term measures of operating performance such as product and manufacturing advances, product quality, and customer loyalty. USERS OF COST MANAGEMENT INFORMATION Cost management information is useful in all organizations: Business Government Non-profit firms units organizations USES OF COST MANAGEMENT INFORMATION Cost management information is useful in all organizations: Strategic Planning and Management Decision-making Reportorial and Management and Compliance to Operational Legal Control Requirements  STRATEGIC MANAGEMENT Management must make sound strategic decisions regarding the choice of products, manufacturing methods, marketing techniques and channels and other long-term issues.  PLANNING AND DECISION-MAKING Cost management information is needed to support recurring decision such as replacing and maintaining equipment, managing cash flows. budgeting raw materials purchases, scheduling production, pricing and managing distribution of products to customers, and so forth.  MANAGEMENT AND OPERATIONAL CONTROL Cost management information is needed to provide a fair and effective basis for identifying inefficient operations and to reward and motivate the most effective manages.  REPORTORIAL AND COMPLIANCE TO LEGAL REQUIREMENTS Reportorial and compliance responsibilities require management to comply with the financial reporting requirements to regulatory agencies such as the Securities and Exchange Commission (SEC), Bureau of Internal revenue (BIR), and other relevant government authorities and agencies. MANAGEMENT A C C O U N TA N T ’ S R O L E I N S T R AT E G I C COST MANAGEMENT  MANAGEMENT ACCOUNTANTS They are the accounting professionals who develop and analyze cost management information and other accounting information.  Management accountants (including cost accountants) are concerned with providing information to managers, that is, people inside an organization who direct and control the operations.  Generally, management accountants do the following tasks: Scorekeeping or data accumulation which enables both internal and external parties to evaluate organizational performance and position.  Interpreting and reporting of information that helps manager to focus on operating problems, opportunities as well as inefficiencies. Problem-solving or quantification of the relative merits of possible courses of action as well as recommendations as to the best procedure.  Specifically, the management accountant provides a system which allows management to receive the necessary information used in performing its administrative functions of: Decision Planning Controlling Making  Planning involves setting of goals for the firm, evaluating the various ways to meet the goals and picking out what appears to be the best way to meet the goals; Controlling which involves the evaluation of whether actual performance conforms with planned goals; and  Decision making which involves determination of predictive information (e.g. relevant costs) for making important business decisions. R E L AT I O N S H I P BET WEEN COST ACCOUNTING AND COST MANAGEMENT Cost Accounting – a systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services in the aggregate and in detail. This includes methods of 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. S T R AT E G I C DECISION MAKING AND THE COST MANAGEMENT A C C O U N TA N T  BASIC COST MANAGEMENT PERSPECTIVES Strategic Enterprise Risk Corporate Social Management Management Responsibility Perspective Perspective Perspective Process Leadership Ethical Management Perspective Perspective Perspective STRATEGIC MANAGEMENT PERSPECTIVE The key to a company’s success is creating value for customers while differentiating itself from its competitors. The management accountant provides input that aids in developing strategy, building resources and capabilities, and implementing strategy.  ENTERPRISE RISK MANAGEMENT PERSPECTIVE Enterprise Risk Management – a process used by an entity to identify those risks and develop responses to them that enable it to be assured of meeting its goals.  CORPORATE SOCIAL RESPONSIBILITY PERSPECTIVE Corporate Social Responsibility – a concept where business organizations consider the needs of all stakeholders when making decisions.  PROCESS MANAGEMENT PERSPECTIVE Effective managers understand that business processes serve the needs of the company’s most important stakeholders – its customers. Business Process – a series of steps that are followed in order to carry out some tasks in a business.  LEADERSHIP PERSPECTIVE To achieve success, organizational leaders must be able to unite the behaviors of employees who have diverse needs, beliefs and goals to the workplace.  ETHICAL PERSPECTIVE Ethical behavior keeps the economy running smoothly. Without ethics, the economy would operate much less efficiently, less products would be available to customers, quality could be lower. ASSIGNMENT Give 4 examples of firms that you think would be significant users of cost management information and explain why. Handwritten in a 1 whole yellow paper