OVERVIEW OF COST

MANAGEMENT AND
STRATEGY

GROUP 1
ABUTIN, BAHIO, BANZON, & BUHIA
 OBJECTIVES:

1. Explain what strategy is.

2. Relate strategic cost management to strategic
management.
3. Describe the nature of cost management information
and how they are developed.
4. Explain the objective, scope and benefits derived from
proper cost management.
5. Enumerate and describe the various users of cost
management information.
6. Explain how cost management information is used for the
following management functions:
Strategic Management
Planning and Decision-Making
Management and Operational Control
Reportorial and compliance to legal and various regulatory
requirements.
7. Understand the cost management accountant’s role in
strategic cost management.
8. Describe the role of the cost management accountant in the
development and implementation of the strategic decision of
the business firm.
9. Enumerate and explain the basic cost management
perspectives.
 INTRODUCTION

With the rise of global competition,

trade wars, and fast pace of
technological progress, proper cost
management is key to business success.
Firms need to adopt competitive
strategies to maneuver in this dynamic
world.
 STRATEGY AND MANAGEMENT

Strategy: An overall plan involving policies to attain long-term

success and sustainable competitive advantage.

Strategic Management: The process of formulating and

implementing that plan.

Strategic Cost Management: Utilizing cost data to inform strategic

management, essential to effective organizational performance.
 EFFECTIVE STRATEGIC
MANAGEMENT REQUIRES:

Anticipating Change: Changing products and processes to respond to

changing customer needs, prioritizing speed and flexibility owing to
decreasing product life cycles.

Creative and Integrative Thinking: Coordinating between departments to

solve issues and increase customer satisfaction with a focus on future
prospects.
Cost Management Information,
including financial (revenue and
costs) and non-financial data
(productivity, quality), is vital to
successful management. Financial
and non-financial factors should be
balanced in such practice, keeping
cost reduction from undermining
quality. A collaborative approach
leads to long-term success and
customer loyalty.
 Cost Management
The practice of accounting in which
the accountant develops and uses
cost management information.
 USERS OF COST MANAGEMENT
INFORMATION

BUSINESS FIRMS
GOVERNMENTAL UNITS
NOT-FOR-PROFIT ORGANIZATIONS

INTERNAL USERS: INTERNAL USERS:

MANAGERS AT ALL LEVELS INVESTORS AND POTENTIAL
EXECUTIVES INVESTORS
OPERATIONAL STAFF SUPPLIERS
PROJECT MANAGERS CUSTOMERS
FINANCE AND ACCOUNTING BANKS AND CREDITORS
PERSONNEL
 USES OF COST MANAGEMENT
INFORMATION

Strategic Management

Involves the development of a sustainable competitive position in

which the firm’s competitive advantage spells continued success.
Involves identifying and implementing goals and plans.
Integrative approach which combines skills from all business functions.
Development of cost management information to facilitate the
principal management function, strategic management.
Planning and Decision-making

Involves budgeting and profit-planning, cash flow

management and other decisions related to the firm’s
operation.
 Management and Operational Control

Operational Control takes place when

mid-level managers monitor the
activities of operating-level managers
and employers.
Management Control, on the other
hand, is the evaluation of mid-level
managers by upper-level managers.
Reportorial and Compliance to Legal
Requirements

Require management to
comply with the financial
reporting requirements to
regulatory agencies, and other
relevant government
authorities and agencies.
 MANAGEMENT ACCOUNTANTS
ROLE IN STRATEGIC COST
MANAGEMENT

Cost Management - The practice

of accounting in which the
accountant develops and uses
the cost management
information.
Management Accountants - are the accounting professionals who
develop and analyze cost management information and other
accounting information

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 in the
making of rational decisions with a view toward acheieving these
objectives.
Management Accountants (including
cost accountants) - are concerned with
providing information to managers, that
is, people inside an organization who
direct and control the operations
 MANAGEMENT ACCOUNTANTS DO THE
FOLLOWING TASKS :

a) Scorekeeping or data accumulation which enables both internal and

external parties to evaluate organizational performance and position

b) Interpreting and reporting of information that helps the manager to focus

on operating problems, opportunities as well as inefficiencies

c) Problem-solving or quantification of the relative merits of possible courses

of action as well as recommendations to the best procedure
 IMPORTANT GUIDELINES :

1. Employs a cost-benefit approach

2. Recognize behavioral as well as technical consideration

3. Use appropriate cost concepts for different purpose

 NECESSARY INFORMATION USED IN PERFORMING
IS ADMINISTRATIVE FUNCTION OF:

A key factor for all companies.

Involves identifying alternatives and selecting a course of action and
specifying how the action will be implemented to further the
organization's objectives.
 CONTROL

Organizations utilize performance

reports to assess managers and the
operations they manage. The
reports compare actual outcomes
to planned or past outcomes,
pointing out areas that require
attention.
Managers are assessed to ascertain their
performance and reward them. For instance,
a good assessment may earn them a bonus,
while a bad assessment may lead to
dismissal.

Operations are assessed to determine

whether they require adjustments, like
expansion, contraction, or change.
 Decision-Making

Making uses data analysis to

forecast future outcomes (e.g., costs,
sales) for better business choices.
This allows for informed decisions
about pricing, investments, and
marketing, minimizing risk and
improving success.
 RELATIONSHIP BETWEEN COST
ACCOUNTING AND COST
MANAGEMENT

Cost Accounting is a
systematic set of procedures
for recording and reporting
measurements of the cost
manufacturing goods and
performing services in the
aggregate and in detail.
Cost Management needs the
output of cost accounting, to
provide managers with the
information which aids
decision.
The most effective system results when the manager-decision
maker and the accountant work together until the accountant
understands the decision to be made and the manager
understands the source of information that the accountant will
report.
Managers use cost management information to choose strategy,
to communicate it and to determine how best to implement it.
 STRATEGIC DECISION MAKING AND
THE COST MANAGEMENT
ACCOUNTANT

A. A Strategic Management Perspective

A strategy is a “game plan” that enables the company to attract customers
by distinguishing itself from competitors.

Why is it important?

Guides decisions on what to offer, who to serve, and how to compete

It’s only effective when implemented well
 3 Types of Strategy: Customer Value Propositions

1. Customer Intimacy
Focus: Customization & strong customer relationships
Message: “We meet your specific needs better than competitors.”

2. Operational Excellence
Focus: Efficiency, price, convenience
Message: “We’re faster, cheaper, and more convenient.”

3. Product Leadership
Focus: Innovation & high-quality products
Message: “We offer superior products.”
B. An Enterprise Risk Management Perspective
Every business manager should recognize the fact that every
strategy, plan and decision involves risks.

Enterprise risk management is 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.
 C. A Corporate Social Responsibility Perspective

A concept where business organizations consider the needs of all

stakeholders when making decisions.

The interests to the stockholders group are as follow:

Customers
Suppliers
Stockholders
Employees
Communities
Environmental and Human Rights Advocate
 D. A Process Management Perspective

A business process is a series of

steps that are followed in order to
carry out some tasks in a
business.
The term value chain is often
used to describe how an
organization’s functional
departments interact with one
another to form business
processes that add value to a
company’s products and services.
 Business Functions Making Up the Value Chain

Research and Development

Product Design
Manufacturing
Distribution
Customer Service

From a control and decision-making standpoint, managers also

need to focus on process excellence instead of functional
performance.
Lean Production is a management approach that organizes
resources such as people and machines around the flow of
business processes and that only produces units in response to
customer orders.
 E. LEADERSHIP PERSPECTIVES

To achieve success, organizational leaders

must be able to unite the behaviors of the
fellow employee who have diverse needs,
beliefs and goals to the workplace

Leaders need to understand how (a)

internal motivation , (b) external
incentives and (cl cognitive bias influence
human behavior
a. Internal Motivation - refers to a motivation that comes
from within one's self

b. External Incentives - such as a bonus compensation, are

given by the organizations to highlight important goals and
to motivate employees to achieve them

c. Cognitive Bias - leaders should be aware that are all people

(including themselves) should possess cognitive biases or
distorted thought processes such as promoting false
assertion that can adversely affect planning, controlling and
decision making
 F. ETHICS PERSPECTIVE

Without fundamental trust in the

integrity of the business, the economy
would operate much less effectively.

Therefore, for the benefit of everyone, it is

vitally important that businesses be
conducted within an ethical framework
that builds and sustain trust.
THANK YOU!
OVERVIEW OF COST
MANAGEMENT AND
STRATEGY

GROUP 1
ABUTIN, BAHIO, BANZON, & BUHIA