Is the practice of accounting in which the accountant develops and uses cost management information?

LECTURE NOTES in Acc 7

OVERVIEW OF COST MANAGEMENT AND STRATEGY

INTRODUCTION

The growing pressures of global competition, trade wars among countries, technological innovation and

changes in business processes have made cost management much more important, critical and dynamic

than ever before. Business managers must think and act competitively and doing so requires a strategy.

Strategy is a set of policies, procedures and approaches to business that produce long-term success

while 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.

In today's business environment, the development and use of information especially cost management

information is a critical factor in the effective management of a firm or organization.

Cost management information is the information that the manager needs to effectively manage the firm,

profit-oriented as well as not-for-profit organization. This includes both financial information about cost

and revenues as well as relevant nonfinancial information about productivity, quality and other key

success factors for the firm.

Cost management is the practice of accounting in which the accountant develops and uses cost

management information. For competitive success, it is not enough to emphasize only on financial

information. This could lead manager to stress cost reduction (a financial measure) while ignoring or

even lowering quality standards (a nonfinancial measure). This decision could be a critical mistake which

could lead to the loss of customers and market share in the long run. If a firm is to compete successfully,

importance should be given to nonfinancial and long-term measures of operating performance such as

product and manufacturing advances, product quality and customer loyalty. Cost management

information, is thus a value-added concept. It adds value by helping a firm be more competitive.

Effective strategic management is very important to the success of every firm or organization and is thus

the theme of this book.

Strategic thinking involves anticipating changes. Products and production processes are designed to

accommodate expected changes in customer demands. Flexibility is important. The ability to make fast

changes is critical as a result of the demand of the new management concepts of e-commerce, speed to

market, and flexible manufacturing. Product life cycle — the time from introduction of a new product to

its removal from the market - expected to become shorter and shorter. Success in the recent past days

or months is no longer a measure of ultimate success; the manager must be "driving" the firm by using

the windshield not the rear-view mirror.

The strategic emphasis also requires creative and integrative thinking, that is, the ability to identify and

solve problems from a cross-functional view. The business functions are often identified as marketing,

production, finance, and accounting / controllership. Instead of viewing a problem as a production

problem, a marketing problem, or a finance and accounting problem, cross-functional teams view it from

an integrative approach that combines skills from all functions simultaneously. The integrative approach

is necessary in a dynamic and competitive environment. The firm's attention is focused on satisfying the

customers' needs; all of the firm's resources, from all functions, are directed to that goal.