Cost Management

Cost Management

Introduction

The term “cost management” is widely used today in the world of business. There is no uniform definition of cost management, the term is used to describe the activities of managers in planning short and long term cost and control decisions to increase the value for customers as well as reduce the price of products and services. For example, managers make decisions considering the amount and type of material used, changes in plant processes, and changes in product design. Cost management is the process by which companies control and plan costs to manage the various costs of your business. Horngren and Datar define cost as “the monetary measure of resource consumption, which is also involved in a process designed to provide a well-defined result” (Horngren & Datar, 2003, pp. 15).

Discussion

Cost management is a comprehensive approach that includes the continuous cost reduction without being confined only to that. The planning and cost control usually is inescapably linked to the planning of revenues and profits (Quinlan, 1989). For example, to improve revenues and profits, managers often incur additional expenses in advertising and product modifications. Cost management is not performed separately. It is an integral part of the overall management and implementation strategies. An example is the programs that improve customer satisfaction and quality (Matz & Curry, 1972).

Management and cost control is to reconcile rational for the use of limited resources. The cost is then the basis of economic calculation. The cost is a mode of treatment of conditions defined by the following three characteristics:

The scope of the calculation: a product, a means of exploitation;

Content: the charges in whole or in part for a specified period;

The time of calculation: anterior (pre cost) or post (recorded cost) in the period (Horngren & Datar, 2003).

Cost Management and Profitability Analysis

Cost management refers to the deliberate and systematic influence on the cost with an aim to increase the efficiency of the company. Cost management is nothing new but a logical pursuit of the economic principle. A meaningful and quality driven management of business costs also results in an increase in shareholder value and represents a key competitive factor for the enterprise. This sustained increase in corporate value can reasonably be considered as a top financial goal. It also opens up the relevance of a professional cost management. This not only applies to listed companies but also for SMEs (Guan et.al, 2009).

The increasing complexity and automation of processes resulted in an increase of common and overhead costs. Cost management was getting more important as well as a complex domain of the business. Cost management is a future-oriented design cost function. Knowing the composition of costs and especially how they react depending on the situation or on the decision is one of the key elements of good governance within an organization. It is especially when meeting the challenges of budget cuts, increasing demands and a variety of increasingly complex operational realities (Bragg, 2001). In the public sector, citizens demand more services and diversification of means of distribution with ...