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Cost Management and Strategy: An Overview

Chapter 1: Cost Management and Strategy: An Overview


The central theme of this book is that cost management information includes all the information that managers need to manage effectively to lead their firms to competitive success. Cost management information includes both financial and nonfinancial information critical to the firm's success. The specific role of cost management in the firm differs depending on the firm's competitive strategy, its type of industry and organization (manufacturing firm, service firm, merchandising firm, not-for-profit organization, or governmental organization), and the management function to which cost management is applied (the functions are strategic management, planning and decision making, management and operational control, and preparation of financial statements).

Changes in the business environment have altered the nature of competition and the types of techniques managers use to succeed in their businesses. These changes include (1) an increase in global competition, (2) advances in manufacturing technologies, (3) advances in information technologies, the Internet, and e-commerce, (4) a greater focus on the customer, (5) new forms of management organization, and (6) changes in the social, political, and cultural environment of business.

Of particular importance are the changes in business, especially the increase in global competition and the changes in management techniques, that have created the need for a new, strategic approach to management and to cost management. Cost management can assist the firm in using the new management techniques: benchmarking, total quality management, continuous improvement, activity-based costing and management, reengineering, the theory of constraints, mass customization, target costing, life-cycle costing, the value chain, and the balanced scorecard.

To apply new management methods effectively, it is crucial that the management accountant understand the firm's strategy. Strategy is the set of plans and policies that a firm employs to develop a sustainable competitive advantage. Using Michael Porter's framework, we see that a firm can compete effectively either as a cost leader or through differentiation.

A variety of professional organizations supports management accounting, including the Institute of Management Accountants (IMA), the American Institute of Certified Public Accountants (AICPA), and the Financial Executives Institute (FEI), among others. Several relevant certification programs recognize competence and experience in management accounting; they include the Certified Management Accountant (CMA) and the Certified Financial Manager (CFM) programs of the IMA and the Certified Public Accountant (CPA) program of the AICPA.

The management accountant is responsible to the firm and to the public for maintaining a high standard of performance, as set forth in the IMA code of professional ethics. The professional ethics standards of the management accountant include competence, integrity, objectivity, and confidentiality.

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