Concept of strategic cost management

Strategic management is the process of strategic analysis of an organization, strategyfocused objectivesetting, strategy formulation, strategy implementation, and strategic evaluation and control. Feb 12, 2020 strategic management is the management of an organizations resources to achieve its goals and objectives. Strategic management accounting definition put into action here is an example to properly illustrate the strategic management accounting definition works in practice. Strategic cost management and the value chain 2097 words. Understanding strategic management can benefit greatly by learning the lessons that ancient history and military strategy provide. The balanced score card is a strategic cost management technique for communicating and evaluating the achievement of the strategy of the organisation. An organization is said to have competitive advantage if its profitability is higher than the average profitability for all companies in its industry. First and foremost, it will be necessary to bring together all the business owners and board members to present the concept of strategic cost management and. Cost management chapter 3 basic cost management concept. Strategic cost management can be defined as scrutinizing every process within your. Strategic cost management is a program established businesses. Strategic management planning for a companys responses to external issues business strategy redirects here. Trying to define strategic cost management requires looking at todays leading organizations who are venturing in this area. The concept of strategic cost management tcsi01 description element of our foundations course which introduces students to the strategic cost management concept.

Therefore, while the fundamental aim and goal of the research is to work for the project success model, however the objective of the research is to explicitly declare the scope of the research to. Strategic cost management can be defined as scrutinizing every process within your organisation, knocking down departmental barriers, understanding your suppliers business, and helping improve their processes cooper and slagmulder argued that strategic cost management is the application of cost management techniques so that they. Porter 1985 developed the concept of the value chain and value system to. Strategic management 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. A coffee retail shop that wants to stand out of the competition, satisfy customers in terms of quality, cost, and time, and still make maximum profit and save costs can apply.

Changes in business environments will require organizations to constantly assess their strategies for success. Oct 01, 2018 strategic cost mgmt, concept,philosophy and key elements for the subject accounting for mgmtcost accounting. The concept of stretch and leverage is relevant in this context. Strategic management is the continuous planning, monitoring, analysis and assessment of all that is necessary for an organization to meet its goals and objectives. Strategic cost management ceopedia management online. Strategic cost management is the process of reducing total costs while improving the strategic position of a business. Strategic management cost leadership tutorialspoint. Nov 18, 2008 as often reported in business week and fortune, most large companies today concede that their cost systems are desperately obsolete. Besides, there is an exhaustive coverage of new techniques in costing decisions such as activitybased costing, target costing, value chain system, price and profitability analysis, balanced scorecard, global perspective of management. Cost leadership, a concept by michael porter, illustrates a method to affirm and manage the competitive advantage.

The cost object is a unit or multiple units of a distinct product or service called a job. Created during the project planning phase, the cost management plan is a document that defines how you manage, control, and communicate a projects costs in order to complete the project on budget. Summary organizational activities and cost drivers basic concepts key. The process by which objectives are formulated and achieved is known as strategic management and strategy acts as the means to achieve the objective. Apr 25, 2017 the cost management plan guides these four processes. Sometimes it refers to the process of planning, organizing, staffing, directing, coordinating and controlling, at other times it is used to describe it as a function of managing people. Shank 1989 assumed that scm might be defined as the managerial use of costs information explicitly directed. Strategic management involves the related concepts of strategic planning and strategic thinking. Some of the processes are new and uncharted territory, so theres no textbook to spell it out. Stretch is a misfit between resources and aspirations.

Scm gives a clear understanding of the firms cost structure in search for sustainable competitive advantage through cost reduction. Discuss the term job costing and process costing systems with examples job costing systems. The value added concept is very important to cost analysis using the traditional management accounting approach. Start studying cost management chapter 3 basic cost management concept.

Dec 25, 2009 wall street business magnate stephen chu, winner of the strathmores whos who registry honoring the most successful business tycoons in the world, says the demolisher betting system lived up exactly to its billing. In this process, the strategists determine objectives and make strategic decisions. Among other things, a cost management plan identifies the individual or group responsible. Apr 24, 2018 strategic cost management is the process of reducing total costs while improving the strategic position of a business. Basic concept of strategic management, mission, vision and. Strategic analysis is involved with analyzing the industry in which the organization is operating its business and analysis of both the external and internal environmental factors. Strategic management and cost management concepts april 8, 2010 section g table of contents introduction 2 1. Strategic cost management is an umbrella term used to define a form of analysis used primarily in manufacturingbased operations. Strategic planning is analytical in nature and refers to formalized procedures to produce the data and analyses used as inputs for strategic thinking, which synthesizes the data resulting in the strategy. Pdf strategic cost management process researchgate. Aug, 2010 the concept of strategy the top management of an organization is concerned with the selection of a course of action from among different alternatives to meet the organizational objectives.

The cost leadership is a result of company efficiency, size, scale, scope and accumulated experience the learning curve. A distinguishing characteristic of phase iii planning in diversified companies is the formal grouping of related businesses into strategic business units sbus or organizational. Strategic management is the process of decision making and planning which leads to the development of an effective strategy to help achieve organizational objectives. Value chain analysis tool of strategic cost management. Strategic management meaning and important concepts.

Subsequently, the collected data are analysed and our model is tested. Why strategic cost management should be a priority this year. Although strategic management as a field of study has developed mostly over the last century, the concept of strategy is much older. The strategic intent concept also encompasses an active management process that includes focusing the organizations attention on the essence of winning. The term strategic management is used to denote a branch of management that is concerned with the development of strategic vision, setting out objectives, formulating and implementing strategies and introducing corrective measures for the deviations if any to reach the organizations strategic intent. Effective cost management ensures that a project is completed on budget and according to its planned scope.

Basic concepts of strategic cost management by joshua b on. Strategic management can be defined as a decisionmaking process that leads to the development. Strategic management involves setting objectives, analyzing the competitive environment. Strategic cost management or otherwise called as scm is the cost management technique that aims at reducing costs while strengthening the. Bromwich has given the following definition of strategic management accounting. The concept of benchmarking would provide right meaning of project success when allowing to properly distributing the meaning of customer profitability to the project providers project owner and contractors. Learn vocabulary, terms, and more with flashcards, games, and other study tools. It is a process of combining the decisionmaking structure with the cost information, in order to reinforce the business strategy as a whole. The authors demonstrate how strategic cost management, the first analytic framework to relate meaningful accounting information to a firms business strategy, is revolutionizing accounting and overall business practices in leading firms. An interface between financial accounting and cost. Shank and vijay govindarajan discuss in depth on the strategic cost management scg and the value chain concept applied in real world situation from the airline industry.

Oct 22, 2016 strategic management accounting definition put into action here is an example to properly illustrate the strategic management accounting definition works in practice. This concept was first described by michael porter. Basic concepts 10 conclusion 14 references 15 appendix i. Strategic management is an approach to leadership that involves clearly articulating a companys overall mission, and then setting a series of strategic objectives, or quantifiable goals, to chart. The term management has been used in different senses. Wall street business magnate stephen chu, winner of the strathmores whos who registry honoring the most successful business tycoons in the world, says the demolisher betting system lived up exactly to its billing. Strategic management involves setting objectives, analyzing the. It determines the companys comparative position in. This is why exchange rates have little to do with multinational company decisions between low cost country sourcing and domestic sourcing. College sector46, chandigarh abstract strategic cost management is a framework for incorporating cost information in to decision made in support of an organizations strategic plan. 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. In this course students learn to perform price and cost analysis to determine price reasonableness in accordance with the federal acquisition report far. Strategic cost management is the process of reducing total costs. This goal can be accomplished by having a thorough understanding of which costs support a companys strategic position and which costs either weaken it or have no impact.

The concept of strategic cost management is illustrated best by example. Key concepts for strategic management and organizational goals. To be introduced to and understand the concept of strategic cost management to obtain a cost management roadmap to assess the current level of cost management performed on any category of spendcost, and the next steps to take on the journey to manage costs to obtain, understand and apply a set of. Strategic cost management is the juncture between managing pure cost in the supply chain and recognizing that pure cost is not the only criteria for making strategic sourcing decisions. The methodology adopted in the survey is presented in the next section. Since you assess the success of a project at least in part by its cost performance, cost management is a prime determinant of project outcome. This technique has been adopted by rapidly growing organisations as a mechanism to help effectively manage their performance and strategy. Cost management has been tied in the past to the concepts of scorekeeping, attention directing, and problem solving, but the expectations of accountants in todays world have changed dramatically. The purchasing handbook defines cost management as, the. Comprehensive and updated coversage the book presents latest adequate materials on cost management concepts, techniques and use of information for strategic. Cost management is a method of reducing operating or production expenses in order to provide less expensive products or services to consumers. The foundation for the strategic management is laid by the hierarchy of strategic intent.

Strategic management is an approach to leadership that involves clearly articulating a companys overall mission, and then setting a series of strategic objectives, or quantifiable goals, to chart progress. Basic concepts of strategic cost management by joshua b on prezi. Cost leadership, basically, refers to the lowest cost of operation in the industry. Strategic management and cost management concepts term. Strategic cost management or otherwise called as scm is the cost management technique that aims at reducing costs while strengthening the position of the business. What is strategic management, and why is it important.

Strategic cost management is the overall recognition of the cost relationships among the activities in the value chain, and the process of managing those cost relationships to a firms advantage. In this study, strategic cost management process is discussed. Contingencies impact on strategic cost management usage in. A few aspects about strategic intent are as follows. Mukesh chauhan, assistant professor, pg department of commerce pg govt. Strategic cost management book by shank govindarajan. Strategic cost management can be defined as scrutinizing every process within your organisation, knocking down departmental barriers, understanding your suppliers business, and helping improve their processes cooper and slagmulder argued that strategic cost management is the application of cost management techniques so that they simultaneously improve the strategic position of a firm and reduce costs. Keywords cost management, strategic cost management, project cost management, project management. Strategic cost management is a process connecting financial management, cost. Apr 25, 2020 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. As often reported in business week and fortune, most large companies today concede that their cost systems are desperately obsolete. The history of strategic management mastering strategic.

In other words, its the process management uses to analyze its production and streamline its operations to keep costs low and manage expenses in the future. Strategic cost management definition strategic cost management is the overall recognition of the cost relationships among the activities in the value chain, and the process of managing those cost relationships to a firms advantage. Key concepts for strategic management and organizational. Strategic management is the management of an organizations resources to achieve its goals and objectives. In this eagerly awaited book, john shank and vijay govindarajan, nationally known experts on the strategic use of cost information, address headon the fundamental concepts of management accounting that are in desperate need of change. Strategic management is the ongoing planning, monitoring, analysis and assessment of all necessities an organization needs to meet its goals and objectives.

Management concepts highlyrelevant training courses and certificate programs ensures that both individuals and organizations alike receive the persistent, effective training required for todays rapidly changing work environment. Each chapter highlights the concepts of management accounting and links it to practical decision situations. Strategic cost management as a competitive advantage in. Its goal is to save you money by making wellthought out business decisions and plan out your firms trajectory. There are three important components of strategic cost management.