AE 23 – STRATEGIC COST MANAGEMENT

At the end of the course, students are expected to:

➢ Identify and apply various mathematical tools that can be used

to evaluate performance at the different level of management
considering short-term and long-term strategies with regards to
cost management.

➢ Develop a balance scorecard to evaluate different financial

performance measure in relation to internal business
processes.
 AE 23 – STRATEGIC COST MANAGEMENT
At the end of the course, students are expected to:

➢ Explain and develop cost analysis for management decision

making using relevant accounting information and benefits

➢ Identify and apply various mathematics tools to evaluate capital

investments and develop advanced management appraisal and
control as a means for financial or non-financial strategic
performance measurement.
 STRATEGIC COST PLANNING, BALANCED SCORECARD,
RESPONSIBILITY ACCOUNTING, TRANSFER PRICING AND
CATEGORIES OF COST QUALITY
 LEARNING OBJECTIVES
By the end of this module, we will be able to:

1. Define strategic planning

2. Differentiate strategic cost management from traditional cost

management

3. Define responsibility accounting

 LEARNING OBJECTIVES
By the end of this module, we will be able to:

4. Differentiate centralized organization from decentralized

organization

5. Explain the effect of the two (2) styles of management with

regards to the treatment of a responsibility center.

6. Explain the use of transfer pricing and the different kinds of

transfer price.
 LEARNING OBJECTIVES
By the end of this module, we will be able to:

7. Explain the effect of transfer pricing to responsibility accounting

8. Identify different mathematical tools that can be used in

strategic cost management.

9. Prepare a balanced scorecard for various business entities

10. Determine the cost quality considering different variables

involved.
 Strategic Cost Planning
Strategic Cost Management - is the process of reducing total costs
while improving the strategic position of a business.

Example, the strategy of a manufacturing firm is to be able to offer

rapid turnaround of customer orders by maintaining tight control
over its bottleneck production operation. (R. Cooper, 1998).
 Strategic Cost Planning
The main objective of cost management is to reduce the costs
expended by an organization while strengthening the strategic
position of the firm.
 Strategic Cost Planning
The standard presents, relevant analysis covering three core
components of SCM which are:

a. Strategic positioning;

b. Cost driver analysis; and

c. Value chain analysis.

 7 Important Stages of Strategic Management
Process
The concept of strategic management involves a continuous
process of planning, monitoring, analyzing and assessing everything
that is necessary for an organization to meet its goals and
objectives.

Fast-paced innovation, dynamic technologies and ever-so-

challenging customer expectations have forced organizations to
think and make decisions strategically to remain successful.
 7 Important Stages of Strategic Management
Process
7 stages of the strategic management process:

Stage 1: Setting the Goal

The first stage of strategic management is to set the goals your

company wants to achieve. This includes both the short-term and
long-term goals of the organization. Share these goals with the
entire organization and explain how each goal will impact the
organization’s future. This will give each team member a sense of
purpose and meaning to their job.
 7 Important Stages of Strategic Management
Process
7 stages of the strategic management process:

Stage 2: Initial Assessment

The second stage involves gathering as much data and information

as possible. This information will be an integral part of identifying
the organization’s mission and vision.
 7 Important Stages of Strategic Management
Process
7 stages of the strategic management process:

Stage 2: Initial Assessment

The vision component answers the question: What does an

organization want to become?

Whereas the mission component describes the company’s business

and everything related to the products, customers, markets, values,
employees of the organization, etc.
 7 Important Stages of Strategic Management
Process
7 stages of the strategic management process:

Stage 3: Situation Analysis

After identifying the mission and vision component of the

organization, the next stage arrives where the organization has to
assess its current situation in the market. This stage involves
evaluating the internal and external environments of the business
and analyzing its competitors.
 7 Important Stages of Strategic Management
Process
7 stages of the strategic management process:

Stage 4: Strategy Formulation

A Situation Analysis is followed by the creation of long-term goals

and objectives. These long-term objectives indicate how a company
can improve its competitive position in the long run. In any goal-
oriented organization, strategies are chosen at 3 different levels:
Business level, Corporate level, and global/international level.
 7 Important Stages of Strategic Management
Process
7 stages of the strategic management process:

Stage 5: Strategy Implementation

Even the best strategic plans will give the best results when
executed in such a way that it successfully creates a competitive
advantage for the company. At this stage, the managerial skills are
of utmost importance rather than using analytics. Communication
is essential at this stage of strategic management because new
strategies must get support all over the organization for its effective
implementation.
 7 Important Stages of Strategic Management
Process
7 stages of the strategic management process:

Stage 6: Strategy Monitoring

After implementing the strategy, it must be monitored constantly to

make it successful. Due to the dynamic conditional, managers must
do a SWOT analysis that prepares the organization for any new
strengths, weaknesses, opportunities, and threats that may arise.
 7 Important Stages of Strategic Management
Process
7 stages of the strategic management process:

Stage 7: SWOT Analysis

SWOT analysis is a very crucial element in strategic management

which most organizations forget about. It helps the organization
identify their strengths, weaknesses, opportunities and threats.
Also, it helps prepare the organization for its future by detecting and
analyzing the internal and external environments and other factors
that may impact the business.
 7 Important Stages of Strategic Management
Process
Plan for The Future/ Controlling and Feedbacking:

Planning for the future is essential for operating a successful

organization. The concept of strategic management is a great first
step towards your end goal.
 7 Important Stages of Strategic Management
Process
Plan for The Future/ Controlling and Feedbacking:

Strategic planning is an organization's process of defining its

strategy, or direction, and making decisions on allocating its
resources to pursue this strategy. It is here that priorities are set. It
may also extend to control mechanisms for guiding the
implementation of the strategy.