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Definition of SCM

Strategic cost management is the process of reducing total costs while improving the strategic position of a business. It involves analyzing cost and management accounting data about a firm and its competitors to develop and monitor business strategy with a focus on continuous improvement and cost reduction. The key stages of strategic cost management are identifying key cost drivers, focusing on reducing costs in areas critical to business success, and increasing costs that support strategic goals. Strategic cost management provides benefits like improved understanding of profit sources, a framework for strategic resource allocation, and ability to assess how to deploy cost management techniques to improve processes like budgeting.

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183 views

Definition of SCM

Strategic cost management is the process of reducing total costs while improving the strategic position of a business. It involves analyzing cost and management accounting data about a firm and its competitors to develop and monitor business strategy with a focus on continuous improvement and cost reduction. The key stages of strategic cost management are identifying key cost drivers, focusing on reducing costs in areas critical to business success, and increasing costs that support strategic goals. Strategic cost management provides benefits like improved understanding of profit sources, a framework for strategic resource allocation, and ability to assess how to deploy cost management techniques to improve processes like budgeting.

Uploaded by

Vernn
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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STRATEGIC COST MANAGEMENT

 Definition
 Strategic Cost Management is the provision and analysis of Cost and Management Accounting data about a firm and
its competitors for use in developing and monitoring the business strategy. Strategic Cost Management focuses on
the cost reduction and continuous improvement and change than cost containment only.
(http://www.accountingnotes.net/cost-accounting/strategic-cost-management/strategic-cost-management-an-
overview/5704)
 Strategic Cost Management or otherwise called as SCM is the cost management technique that aims at reducing costs
while strengthening the position of the business. It is a process of combining the decision-making structure with the
cost information, in order to reinforce the business strategy as a whole. It measures and manages costs to align the
same with the company’s business strategy. (https://businessjargons.com/strategic-cost-management.html)
 Strategic cost management is the process of reducing total costs while improving the strategic position of a business.
This goal can be accomplished by having a thorough understanding of which costs support a company's strategic
position and which costs either weaken it or have no impact. Subsequent cost reduction initiatives should focus on
those costs in the second category. Conversely, it may be useful to increase costs that support the strategic position of
the business. (https://www.accountingtools.com/articles/strategic-cost-management.html)

 Stages of Strategic Cost Management

 Importance of Strategic Cost Management


 Strategic cost management has become an essential area now a day. While formulating the strategy for the
accomplishment of organizational overall objectives, different cost drivers should be clearly identified.
Identification of key cost drivers helps companies to focus on key activities that will constitute almost 90% of the
total costs. In view of this, the importance of strategic cost management should not be underestimated. This
implies that an organization should be installing appropriate framework of strategic cost management to reduce its
costs in key areas on which the success of organization is mainly dependent. Strategic cost management is
understood in different ways in literature. Strategic cost management can be defined as “scrutinizing every
process within your organization, knocking down departmental barriers, understanding your suppliers’ business,
and helping improve their processes” Cooper and Slagmulder argued that strategic cost management is “the
application of cost management techniques so that they simultaneously improve the strategic position of a firm
and reduce costs”.

 Advantages

 Strategic Cost Management provides number of benefits to different organisations. It has provided the
business with an improved understanding of its sources of profits.

Some benefits are given below:

(i) It has developed a framework for reviewing the strategic allocation of resources across the business based
on core business processes and activities.

(ii) It has improved the businesses understanding of its cost drivers leading to improved articulation of its
strategic plans in cost terms.

(iii) It has enabled the business to assess, at a high level, how activity-based techniques can be deployed at
different levels in the business to improve its cost management process, such as in budgeting and in process
improvement.

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