Strategic Cost Management
Strategic Cost Management
Strategic Cost Management
aim to reduce cost while strengthening the strategic position of a business. Strategic cost
management can be applied in service, manufacturing, and not-for-profit organizations.
The above objective can be attained if the company can determine which costs support a
company’s strategic position. In this case, it would be beneficial to increase costs that support the
strategic position of a business. It is not good to cut costs in strategically important areas. Doing
so reduces consumer satisfaction and experience. Eventually, it could lead to a decline in sales,
and ultimately, in profit.
A company should also identify which costs either causes decline in the strategic position of a
business or have no impact at all. Thus, management needs to focus on reduction initiatives on
these types of cost so that they can provide input regarding how certain costs should be incurred
to support the competitive position of a company.
Three ways to institute cost management techniques that will not only manage costs but also
augment profit realization are as follows:
1) Develop systems that would streamline the transaction between corporate support
departments and the operating units.
2) Establish transfer pricing systems to coordinate the buyer-supplier interactions between
decentralized organizational operating units
3) Utilize pseudo profit centers to create profit maximizing behavior in what were formerly
cost centers.
2) Non profit organizations- these organizations likewise need the economic information
provided by management accountants in attaining their organization’s objectives.
Management accountants should provide both quantitative and qualitative information to assist
managers in decision making. Managers are information users, while accountants are information
providers.