7/29/2019 Cost Management Techniques

1/12

Basic Cost Management Concepts

Dr. M. Venkateshwarlu

PGPM - IIM I - MANAGEMENT ACCOUNTING

7/29/2019 Cost Management Techniques

2/12

What is Management Accounting?

Management Accounting is the process ofIdentifying

Measuring

Analyzing

Interpreting

Communicating information

Managerial accounting is an integral part ofthe management process

PGPM - IIM I - MANAGEMENT ACCOUNTING

7/29/2019 Cost Management Techniques

3/12

How Management Accounting Adds Value?

1. Providing information for decision making andplanning.

2. Assisting managers in directing and controllingactivities.

3. Motivating managers and other employeestowards organizations goals.

4. Measuring performance of activities, managers,

and other employees.5. Assessing the organizations competitiveposition.

PGPM - IIM I - MANAGEMENT ACCOUNTING

7/29/2019 Cost Management Techniques

4/12

Accounting System

(part of Organizations Management

Information System)

Accumulates data for use in bothfinancial and management accounting

Cost Accounting System One Part of

organizations over all accounting system

Management Accounting

Information for decision

making, planning, directing,

and controlling an

organizations operations andassessing competitive

position.

Managers are the end users

of the Information

Financial AccountingPublished

financial statements and other

financial reports

External Users stockholders,

financial analysts, trade unions

,consumer groups, suppliers

and government agenciesPGPM - IIM I - MANAGEMENTACCOUNTING

7/29/2019 Cost Management Techniques

5/12

Management Accounting Vs Financial Accounting

Management Accounting Financial Accounting

Users of

Information

Managers within the organization Interested parties,

stakeholders outside the

organization

Sources of

Information

and data

The Organizations basic accounting

system and other operating activities

information

Drawn from organizations

accounting system only.

Regulation Not regulated and it is intended only

for management .

Regulated in terms of cost Audit for

process manufacturing firms.

Required and must

confirm to GAAP,

Accounting Standards ,

and some extend SEBI andRBI.

Reports Reports often focus on sub units

within the organization, based on

historical data, estimates and

projection of future events.

Reports focus on overall

enterprise, and based on

historical transaction data.

PGPM - IIM I - MANAGEMENT ACCOUNTING

7/29/2019 Cost Management Techniques

6/12

Role of Management Accountant in an Organization

Chief Financial

Officer (CFO)

Chief Executive Officer (CEO)

Vice President

for Marketing

Vice President

for Operations

Controller TreasurerChief Information

Officer (CIO)

Cost Management

Financial Information Systems

Financial Reporting

Other Reporting Obligations (e.g., tax)

7/29/2019 Cost Management Techniques

7/12

Evolution and Adaption of Management Accounting

Service Vs Manufacturing Firms.

Global Competition.

Customer Focus.

Cross Functional Teams.

Computer Integrated Manufacturing.

Product Life Cycles and Diversity.

Time Based Completion.

Just in Time (JIT) Systems. Total Quality Management Systems.

Continuous Improvement.

PGPM - IIM I - MANAGEMENT ACCOUNTING

7/29/2019 Cost Management Techniques

8/12

Cost Management Systems

Cost Management System is a managementplanning and control system with the followingobjectives.

To measure the cost of resources consumed inperforming organizations significant activities.

To identify and eliminate non value adding activities.

To determine the efficiency and effectiveness of all

major activities performed in organization. To identify and evaluate new activities that can

improve the future performance of the organization.

PGPM - IIM I - MANAGEMENT ACCOUNTING

7/29/2019 Cost Management Techniques

9/12

Strategic Cost Management and Value Chain

The set of linked, value- creating activities, ranging

from securing basic raw materials and energy to the

ultimate delivery of products and services, is called

the value chain. Managers should carefully examine the chain of

linked activities in order to identify any constraints

that prevent the organization from reaching a higher

level of achievement.

PGPM - IIM I - MANAGEMENT ACCOUNTING

7/29/2019 Cost Management Techniques

10/12

Contemporary Management Techniques

The Balanced Scorecard and Strategy Map

The Value Chain

Activity Based Costing and Management

Business Intelligence

Target Costing Life Cycle Costing

Benchmarking

Business Process Improvement

Total Quality Management

Lean Accounting

The Theory of Constraints

Enterprise Sustainability

Enterprise Risk Management

Many of these

techniques aims atimproving operating

and cost performance

of a firm

7/29/2019 Cost Management Techniques

11/12

Theory of Constraints

Identifying the constraints that prevent theorganization from reaching a higher level ofachievement is often called the theory of

constraints. The most cost effective ways to ease the most

limiting constraints are sought.

When these constraints are relaxed, theorganization can reach a higher level of goalattainment.

PGPM - IIM I - MANAGEMENT ACCOUNTING

7/29/2019 Cost Management Techniques

12/12

Thank You

PGPM - IIM I - MANAGEMENTACCOUNTING