Learning Objectives
5 objectives- Understand the fundamental principles and significance of strategic cost management in business decision-making.
- Analyze different types of costs and their behavior to facilitate effective cost control and planning.
- Apply various cost management techniques including cost-volume-profit analysis, activity-based costing, and target costing.
- Evaluate cost management strategies within supply chains and operational contexts, including lean management principles.
- Use performance measurement tools to assess the effectiveness of cost management and support strategic decision-making.
Content Outline
PreviewUnit 1309 - Strategic Cost Management
1. Introduction to Strategic Cost Management
- Definition and scope of strategic cost management
- Importance in business decision-making
- Key principles: cost leadership, value chain analysis, strategic positioning
- Strategies for cost management: cost reduction, cost avoidance, cost control
2. Cost Classification and Behavior
- Classification of costs based on behavior:
- Fixed costs
- Variable costs
- Mixed costs (semi-variable)
- Relevant cost concepts (sunk costs, opportunity costs)
- Importance of understanding cost behavior in budgeting and forecasting
3. Cost-Volume-Profit (CVP) Analysis
- Introduction to CVP analysis
- Calculation and interpretation of:
- Breakeven point (units and sales value)
- Contribution margin (per unit and ratio)
- Margin of safety
- Profit planning and target profit analysis
- Assumptions and limitations of CVP analysis
4. Activity-Based Costing (ABC)
- Concept and rationale of ABC
- Differences between traditional costing and ABC
- Steps to implement ABC:
- Identifying activities
- Assigning costs to activities
- Determining cost drivers
- Allocating costs to products/services
- Advantages and challenges of ABC
5. Target Costing
- Definition and strategic role of target costing
- Market-driven cost planning
- Steps in target costing process:
- Market research and price determination
- Desired profit margin setting
- Cost gap analysis
- Cost reduction techniques
- Application examples in product development
6. Cost Estimation and Cost Control
- Techniques of cost estimation:
- Regression analysis
- Learning curve theory
- High-low method
- Methods of cost control:
- Budgetary control
- Standard costing and variance analysis
- Cost audits
- Monitoring and managing costs effectively
7. Cost Management in Supply Chain
- Role of cost management in supply chain operations
- Collaboration and partnerships with suppliers
- Cost reduction strategies in procurement, logistics, and inventory management
- Impact on overall supply chain efficiency and competitiveness
8. Lean Management and Cost Reduction
- Principles of lean management:
- Eliminating waste (Muda)
- Continuous improvement (Kaizen)
- Just-in-time production
- Tools and techniques:
- Value stream mapping
- 5S methodology
- Kanban system
- Application of lean methods for cost reduction and operational efficiency
9. Performance Measurement and Cost Management
- Key performance metrics related to cost management:
- Return on Investment (ROI)
- Economic Value Added (EVA)
- Balanced Scorecard perspectives (financial, customer, internal processes, learning & growth)
- Using metrics to evaluate cost management effectiveness
- Linking performance measurement to strategic objectives
10. Cost Management in Decision Making
- Role of cost management in pricing decisions
- Make-or-buy analysis
- Product portfolio analysis and strategic prioritization
- Case studies on how cost management influences key business decisions
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