STRATEGIC COST MANAGEMENT

Christian M. Saddi | BSA 2C

Chapter 1: Introduction to Cost organization by deciding

corrective actions to take if
Management
actual performance didn’t go as
planned.
BASIC CONCEPTS: 4) DECISION MAKING – it is inherent
Management can be defined as: in all management functions
1) As a group of people – since the aforementioned
(executives or other managers) functions involve decision
who are primarily responsible for making.
decision making leading to
achievement of organization’s MANAGEMENT ACCOUNTING
goals & objectives. Information to be used by
2) As a function/process – management for decision making is
management is the systematic provided by management
process of planning, organizing, accountants — helps managers make
and controlling tasks to achieve decisions. Also known as “managerial
organizational goals. (Traditional accounting” or “internal accounting”.
view/definition) This is the process of identification,
measurement, accumulation, analysis,
FUNCTIONS OF MANAGEMENT preparation, interpretation, and
1) PLANNING - process of setting communication of information (both
goals/objectives of the firm, financial & operating) used by
either short-term or long-term. It management to plan, evaluate, and
includes evaluating and control within an organization and to
choosing the best course of assure use of and accountability for its
action (or best alternatives) in resources.
meeting the goals. Must also
evaluate future contingencies MANAGEMENT ACCOUNTING vs.
affecting the firm and shape the
FINANCIAL ACCOUNTING
future operational & strategic
landscape of the company. Management Financial
AREA Accounting Accounting
Note: Plans should be SMART (Specific, Measurable,
Attainable, Realistic, Time-bounded) Internal users External users
1. Users of
2) DIRECTING/ORGANIZING – (managers & other (potential & existing
information personnel) investors, lenders, and other

known as tackling activities creditors)

Not bounded by In accordance with
because the management 2. Restrictive
outside guidelines or PFRS & other
Guidelines
instructs, guides, and inspire the rules standards
Financial & non- Financial information
employees by communicating 3. Type of
financial information about the reporting
with them. Simply, the Information (as long as it is useful in DM) entity
management “taps” the 4. Emphasis of Relevance & Precise, reliable, &
resources of an organization for Reports Timeliness faithfully represented
Reports from any
better use in accordance with 5. Information Financial reports
source (both internal &
Source about the entity itself
the plan. Management oversees external data)

day-to-day operations to ensure 6. Focus of More detailed, Aggregated, concise,

Analysis technical & specific & generalized
everything is functioning
Prepared as need
Periodically/ At least
smoothly in carrying out the 7. Frequency of arises (more frequent and
annually
plan. Reporting tend to focus on day-to-day
(specific time-frame)
operations)

3) CONTROLLING – process of Projection (Primarily)

8. Time Orientation Entirely historical
performance evaluation which & Historical
*Benchmarking – the practice of comparing
involves evaluation of actual
business processes & performance metrics to
performance if it conforms to the
industry’s bests and best practices from other
planned results. Management companies.
controls the future actions of an
STRATEGIC COST MANAGEMENT
Christian M. Saddi | BSA 2C

*While managerial accounting works more as a
problem solver, financial accounting shows
exactly what business has accomplished to
date.
LINE FUNCTION vs. STAFF FUNCTION
(The purpose of both line & staff function is to
ensure that the organization meets its business
objectives. They differ on how they achieve their
respective purpose.)
finances from financial risk that arises
from business activities. A treasurer
deals with money, cash, or wealth of an
organization. They must know the
sources of money and exercise
prudence on handling, using, and
managing the money of the
organization.

LINE FUNCTION – these are people in Controller’s Treasurer’s

the organization which primary
Functions Functions
activities is essential to the basic
Reporting & Interpreting
operation of business to achieve Provision of Capital
Data
business objectives, which is to Tax Administration Investor Relations
generate revenues & profits. In other Government Reporting Short-term Financing
words, line function is the one who is Banking & Custody of
Management Auditing
directly involved in the core work of an Funds
organization. Managers with line Internal Auditing Credit & Collections
authority exercise *downward authority Economic Appraisal Investment & Insurance
(*authority to give command). Protection of Assets
Planning & Controlling
STAFF FUNCTION – those individuals
or groups in an organization who STANDARDS OF ETHICAL CONDUCT
provide services & advices to line FOR MANAGEMENT ACCOUNTANTS
managers. Supportive in nature Institute of Management Accountants (IMA)
because they assist the line function - association of accountants & financial
(eg. human resources, maintenance, professionals in business.
legal & accounting). - one of the largest & most respected
association focused exclusively on
advancing the management accounting
CONTROLLER vs. TREASURER
profession.
(Controllership & treasurership constitutes
corporate finance. The above functions should - committed on advocating the highest
NOT be combined on the same person) standards of ethical business practices
both for its members and the profession
since the organization was founded in 1919.
CONTROLLERSHIP – the practice of the
established science of control which is
IMA promulgated the following ethical
the process which management
standards:
assures itself that the resources are
1) COMPETENCE
procured & utilized according to the
• Maintain an appropriate level of
plans to achieve the company’s
professional leadership & expertise
objectives. A controller’s (chief by enhancing knowledge & skills.
accountant) main function is related to • Perform professional duties in
supervision of record keeping, taxation, accordance with relevant laws,
reporting, and processes to attain the regulations, and technical
objectives of internal control. standards.
• Provide decision support
TREASURERSHIP – concerned with information and recommendations
that are accurate, clear, concise,
acquisition, financing, and
and timely. Recognize & help
management of assets of a business to
management risk.
maximize the wealth of the firm for its
owner. Meanwhile, a treasurer serves as
the protector of a company’s value and
STRATEGIC COST MANAGEMENT
Christian M. Saddi | BSA 2C

2) CONFIDENTIALITY
• Keep information confidential
except when disclosure is
authorized or legally required.
• Inform all relevant parties regarding
appropriate use of confidential
information. Monitor to ensure
compliance.
• Refrain from using confidential
information for unethical or illegal
advantage.

3) INTEGRITY
• Mitigate actual conflicts of interest.
Regularly communicate with
business associates to avoid
apparent conflict of interest. Advise
all parties of any potential conflict of
interest.
• Refrain from engaging in any
conflict that would prejudice
carrying out duties ethically.
• Abstain from engaging in or
supporting any activity that might
discredit the profession.
• Contribute to a positive ethical
culture & place integrity of the
profession above personal interests.

4) CREDIBILITY or OBJECTIVITY
• Communicate information fairly &
objectively.
• Provide all relevant information that
could reasonably be expected to
influence an intended user’s
understanding of the reports,
analyses, or recommendations.
• Report any delays or deficiencies in
information, timeliness, processing,
or internal controls in conformance
with organization policy and/or
applicable law.
• Communicate professional
limitations or other constraints that
would preclude responsible
judgment or successful
performance of an activity.