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MBA 710Strategic Cost Management
Introductory comments on business, managerial information and cost control
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Business Made Simple
Managers need to know
What do the customers want?
What will they pay for it?
What will it cost to provide it?
Costly mistakes can be avoided with this information.
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Information is the Key to Success
“To manage in the future, executives will need an information system integrated with strategy, rather than individual tools that so far have been used largely to record the past”
Information should answer the key question
What should I do?
Not
What are the results of what I’ve already done?
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Information is the Key to Success
Must develop an integrated cost / quality / functionality measurement system
Traditional accounting information is not sufficient
Backwards looking
Fails to measure important items
Much important information is not quantitative
Designed to meet reporting requirements, not management needs
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Types of Information
Foundation information Basic diagnostics
May indicate something is wrong, but not why Basic financial ratios Benchmarked
Productivity information Productivity of key resources Concern should be for total productivity Benchmarked
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Types of information
Competence information Indicates where a business has a leadership advantage Innovation is the most important core competence
To win, you have to be the best at something
Resource allocation information How to best use the resources available What if it fails to produce the intended results? What if it is more successful than we imagined?
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Effective Cost Management
Cost management is most effective at the development stage
About 85% of costs are committed to at the development stage
It is too late to effectively manage costs at the production stage
All links in the value chain must be managed
Suppliers you customers
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Cost Commitment and IncurrenceC
um
ula
tiv
e cost
Idea R & DPre-
production ProductionPost-
production
Costincurrence
Costcommitment
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Return on Management
Management effort is a vital resource
Return on management
Organizational productivity
Management time and attention invested
Stay focused on strategy Do not diffuse talent over too many opportunities
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Return on Management
Channel energies into the correct projects
Detrimental capital budgeting
Pick important measures
Should reflect critical success factors
Avoid measures that are interesting but not useful
Can managers recall their key measures?
Maximum of seven measures
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Return on Management
Does everyone watch what the boss watches?
Are there common goals within the organization?
Conflicting goals may be beneficial
“Stretch” goals with adequate resources
Stimulate creativity
Reduce paperwork and the processes that tie managers down
Distinguish between useful and interesting information
