Intro to Strategic Cost Management

What is Strategic Cost Management?

 Involves the development of cost management information to facilitate the
principal management function which is strategic management.
 Involves the development of a sustainable competitive position

Cost management
 Practice of accounting in which the accountant develops and uses cost
management information
 Adds value by helping a business to be more competitive

Cost management information

 Information that the manager needs to effectively manage the firm, profit-oriented
as well as not-for-profit organization.
 Includes both financial information about cost and revenues as well as relevant
non-financial information about productivity, quality and other key success
factors.

Users of Cost Management Information

 Strategic Management
 Planning and decision making
 Management and operational control
 Reportorial and compliance to legal requirements

Uses of Cost Management Information

 Business firms
 Governmental units
 Non-profit organizations

Management Accountant’s Role in Strategic Cost

o Cost Management
 Practice of accounting in which the accountant develops and uses cost
management information

o Management Accounting
 Involves the application of appropriate techniques and concepts to economic
data so as to assist management in establishing plans for reasonable
economic objectives and making rational decisions
 Process of identification, measurement, accumulation, analysis, preparation,
interpretation and communication of financial information which is used in
planning, evaluating and controlling activities

1
 o Scorekeeping or data accumulation
￮ Interpreting and reporting of information
￮ Problem solving

Administrative functions
o Planning
 Involves setting of goals for the firm, evaluating various ways to meet the
goals and picking out what appears to be the best way to meet the goals
o Controlling
 Involves the evaluation of whether actual performance conforms with
planned goals
o Decision making
 Involves determination of predictive information (e.g. relevant costs) for
making important business decisions

Professional Environment of Cost Management

Line vs Staff Authority

Line Authority
 authority to command action r give orders to subordinates
 Line managers are directly responsible for attaining the objectives of the
business.

Staff authority
 Authority to advise but not command others, it is exercised upward.
 Staff managers give support, advise, and service to line departments.
 (personnel, purchasing, engineering and accounting)

2
Controller and Controllership
Controller
 (also called the chief accounting officer) is the financial executive primarily
responsible for management accounting and financial accounting
Controllership
 is the practice of the established science of control which is the process by which
management assures itself that the resources are procured and utilized
according to plans in order to achieve the company’s objectives.

Basic functions of Controllership

o Planning
 Establish and maintain an integrated plan of operation consistent with the
company’s goals and objectives
o Control
 Develop and revise against standards against which to measure
performance and provide guidance and assistance to other members of
management in ensuring conformance of actual results to standards
o Reporting
 Prepare, analyze and interpret financial results for utilization by
management in the decision making process
o Accounting
 Design, establish and maintain general and cost accounting systems at all
company levels
o Other Primary Responsibilities
 Manage and supervise functions such as taxes, maintain appropriate
relationships with internal and external auditors, develop and maintain
systems and procedures, develop accounting policies
o Qualifications of the Controller
 Excellent technical foundation in accounting and finance
 Understanding of the principles of planning, organizing and control
 General understanding of the industry in which the company competes
and the social, economic and political forces involved
 Thorough understanding of the company, its technologies, products,
policies, objectives, environment etc.
 Ability to communicate with all levels of management and basic
understanding of other functional problems
 Ability to express ideas clearly in writing or in making informative
presentations
 Ability to motivate others

3
Treasurer and Treasurership
Treasurer
 Has custody of cash and funds invested in various marketable securities.
Generally responsible for maintaining relationships with banks and other
creditors.

Treasurership
 is concerned with the acquisition, financing and management of assets of a
business concern to maximize the wealth of the firms for its owners

Basic functions of Treasurership

￮ Funds procurement
 Raising of funds in accordance with the firms planned capital structure
￮ Banking and custody of funds
 Direct management of cash and cash equivalents and maintenance of
good relations with banks and other non-bank institution
￮ Investment of funds
 Management of the Company’s placements and securities or purchase of
debt or equity instruments
￮ Other functions
 Corporate pension and retirement fund
 Investor relations
 Compliance with legal and regulatory provisions relating to funds
procurement, use and distribution as well as coordination of finance
function with accounting function