Strategic cost management is a program that businesses use to regularly identify and analyze cost drivers to lower costs and maximize value. It allows businesses to not only lower costs but gain a competitive advantage. Strategic cost management involves creating a strategic plan, prioritizing operations, and ensuring efficient use of resources. Once implemented, it brings transparency to costs and allows managers to make timely cost decisions. It can also show which customers are most or least profitable. The framework includes core functions, value-adding activities, and support activities. Effective strategic cost management requires support from top management, integrated information systems, and cross-functional teams.
The document discusses strategic cost management (SCM) as an important tool for gaining competitive advantage. SCM analyzes costs in the broader context of a firm's overall value chain. It helps firms understand their cost structures to develop superior strategies. SCM uses tools like value chain analysis, activity-based costing, and analysis of cost drivers to examine how firms can configure activities to reduce costs or pursue different competitive strategies like cost leadership or differentiation.
The document discusses product life cycle costing (PLCC). PLCC tracks and accumulates all costs from invention to abandonment of a product. It helps calculate total costs over the product's entire lifecycle. PLCC considers initial costs, operating and maintenance costs, and can identify areas for cost reduction. PLCC was developed in the 1960s and used by defense agencies to improve cost effectiveness. It provides a more accurate assessment of total revenues and costs than traditional accounting methods.
Capital budgeting is the process of analyzing potential long-term investments and capital expenditures. It involves forecasting cash flows of investment projects over multiple years and using tools like net present value, internal rate of return, and payback period to evaluate which projects to undertake given the firm's financial resources and objectives. The capital budgeting process includes organizing proposals, screening projects, evaluating projects, establishing priorities, and final approval and evaluation. The goal is to allocate funds efficiently to projects that will maximize long-term profitability.
This document discusses capital structure and the factors considered when determining a firm's optimal capital structure. It discusses several approaches to determining the optimal capital structure, including:
1. The net income approach, which argues that changing capital structure affects overall cost of capital and firm value.
2. The net operating income/Modigliani-Miller approach, which argues that changing capital structure does not affect overall cost of capital or firm value.
3. The traditional/intermediate approach, which argues that increasing debt initially decreases overall cost of capital up to an optimal point, after which further increasing debt increases overall cost of capital.
The document analyzes the assumptions and implications of each approach. It also lists factors
The document discusses the Arbitrage Pricing Theory (APT), which assumes an asset's return depends on various macroeconomic, market, and security-specific factors. The APT model estimates the expected return of an asset based on its sensitivity to common risk factors like inflation, interest rates, and market indices. It was developed by Stephen Ross in 1976 as an alternative to the Capital Asset Pricing Model. The APT formula predicts an asset's return based on factor risk premiums and the asset's sensitivity to each factor.
A customer-centric costing system that bases all cost workings for a product from its market price. The purpose is to reduce cost of a product as low as possible to arrive at a price that would be either equal to or less than that of competitors’ product while delivering the same functionality.
This document discusses various concepts related to investment returns and risk. It begins by defining return as income received plus capital gains. It then discusses the components of return including yield and capital gains. It provides a formula to calculate total return. The document then discusses various types of risk including market risk, liquidity risk, and foreign exchange risk. It also covers sensitivity analysis using range and standard deviation. Finally, it discusses portfolio returns and risks, and introduces the Capital Asset Pricing Model to relate expected returns to market risk.
The document discusses strategic cost management (SCM) as an important tool for gaining competitive advantage. SCM analyzes costs in the broader context of a firm's overall value chain. It helps firms understand their cost structures to develop superior strategies. SCM uses tools like value chain analysis, activity-based costing, and analysis of cost drivers to examine how firms can configure activities to reduce costs or pursue different competitive strategies like cost leadership or differentiation.
The document discusses product life cycle costing (PLCC). PLCC tracks and accumulates all costs from invention to abandonment of a product. It helps calculate total costs over the product's entire lifecycle. PLCC considers initial costs, operating and maintenance costs, and can identify areas for cost reduction. PLCC was developed in the 1960s and used by defense agencies to improve cost effectiveness. It provides a more accurate assessment of total revenues and costs than traditional accounting methods.
Capital budgeting is the process of analyzing potential long-term investments and capital expenditures. It involves forecasting cash flows of investment projects over multiple years and using tools like net present value, internal rate of return, and payback period to evaluate which projects to undertake given the firm's financial resources and objectives. The capital budgeting process includes organizing proposals, screening projects, evaluating projects, establishing priorities, and final approval and evaluation. The goal is to allocate funds efficiently to projects that will maximize long-term profitability.
This document discusses capital structure and the factors considered when determining a firm's optimal capital structure. It discusses several approaches to determining the optimal capital structure, including:
1. The net income approach, which argues that changing capital structure affects overall cost of capital and firm value.
2. The net operating income/Modigliani-Miller approach, which argues that changing capital structure does not affect overall cost of capital or firm value.
3. The traditional/intermediate approach, which argues that increasing debt initially decreases overall cost of capital up to an optimal point, after which further increasing debt increases overall cost of capital.
The document analyzes the assumptions and implications of each approach. It also lists factors
The document discusses the Arbitrage Pricing Theory (APT), which assumes an asset's return depends on various macroeconomic, market, and security-specific factors. The APT model estimates the expected return of an asset based on its sensitivity to common risk factors like inflation, interest rates, and market indices. It was developed by Stephen Ross in 1976 as an alternative to the Capital Asset Pricing Model. The APT formula predicts an asset's return based on factor risk premiums and the asset's sensitivity to each factor.
A customer-centric costing system that bases all cost workings for a product from its market price. The purpose is to reduce cost of a product as low as possible to arrive at a price that would be either equal to or less than that of competitors’ product while delivering the same functionality.
This document discusses various concepts related to investment returns and risk. It begins by defining return as income received plus capital gains. It then discusses the components of return including yield and capital gains. It provides a formula to calculate total return. The document then discusses various types of risk including market risk, liquidity risk, and foreign exchange risk. It also covers sensitivity analysis using range and standard deviation. Finally, it discusses portfolio returns and risks, and introduces the Capital Asset Pricing Model to relate expected returns to market risk.
This document discusses dividend policy and the various theories around it. It defines dividends and discusses Walter's model and Gordon's model, which propose that dividend policy affects firm value. It also covers the irrelevance theories of Modigliani-Miller and the traditional approach, which argue that dividend policy does not impact value. The document provides formulas for the different models and discusses their assumptions and criticisms.
Investment Decision — Capital Budgeting Techniques — Pay Back Method — Accounting Rate Of Return — NPV — IRR — Discounted Pay Back Method — Capital Rationing — Risk Adjusted Techniques Of Capital Budgeting. — Capital Budgeting Practices
Leverage refers to the use of borrowed funds to acquire assets in the hope that the returns will exceed the cost of borrowing. There are three main types of leverage: operating leverage measures the relationship between sales and operating income; financial leverage measures the relationship between operating income and earnings per share; and combined leverage measures the relationship between sales and earnings per share to indicate total risk. Operating leverage depends on fixed operating costs and how they impact profits with changes in revenue. Financial leverage focuses on how fixed financing costs, like debt, impact returns. Combined leverage assesses a company's overall risk from fixed costs.
The document discusses the cost of capital. It defines cost of capital as the minimum return expected by investors for providing capital to a company. It includes the costs of debt, equity, preference shares, and retained earnings. The weighted average cost of capital takes the costs of different sources of capital weighted by their proportions. Calculating cost of capital is important for capital budgeting and evaluating new projects and investments.
The Capital Asset Pricing Model (CAPM) uses beta to measure the non-diversifiable risk of a security and determine its expected return. CAPM assumes investors want to maximize returns and only consider systematic risk. It models expected return as the risk-free rate plus a risk premium based on the security's beta. The Security Market Line graphs this relationship between beta and expected return. Some researchers like Fama and French have expanded CAPM with additional size and value factors.
The Net Income (NI) approach proposes that a firm's value increases as it takes on more debt financing due to debt generally being a cheaper source of capital than equity. According to the NI approach, the costs of debt and equity remain constant regardless of capital structure, so the overall cost of capital declines as debt levels rise. However, the NI approach assumes unrealistic conditions like taxes being ignored and that more debt does not affect investor risk perceptions. It implies the maximum firm value occurs with 100% debt financing.
Activity based costing is considered to be useful only for Manufacturing Organizations whereas reality is that it is equally usefull to Service providers
This document discusses capital budgeting and methods for evaluating long-term investment projects. It defines capital budgeting as evaluating investments that maximize owner wealth over multiple years. Several evaluation methods are described, including payback period, net present value (NPV), internal rate of return (IRR), and profitability index (PI). The document recommends using NPV, as it considers all cash flows and their timing, incorporating the time value of money to determine the true profitability of investments.
Social Cost Benefit Analysis: Concept of social cost benefit, significance of SCBA, Approach to SCBA,
UNIDO approach to SCBA, Shadow pricing of resource, the little miracle approach,
Project Implementation: Schedule of project implementation, Project Planning, Project Control, Human
aspects of project management, team building, high performance team.
This document discusses receivables management. It begins by defining receivables as sales made on credit that represent amounts owed to a firm from customers. Effective receivables management involves establishing credit policies, evaluating customer creditworthiness, and controlling receivables. The objectives are to maximize return on investment in receivables while allowing sufficient sales growth. Key aspects covered include granting credit, costs of receivables management, collection methods, and analysis of receivables aging and customer importance.
This document discusses value chain analysis, which was first proposed by Michael Porter in 1985. It involves identifying a firm's primary and support activities that add value to its products or services and analyzing them to reduce costs or increase differentiation. The key stages of value chain analysis for strategic cost management are identifying activities, establishing their costs and importance, comparing costs, identifying cost drivers, and finding opportunities to reduce costs or improve value through internal and external linkages. This allows firms to assess their competitive positioning and strategically improve quality, reduce time and costs, and increase benefits for both the firm and partners in the value chain.
A simple and comprehensive presentation on Profit maximization v/s Wealth Maximization.
By Arvinder Pal Kaur
Faculty of Management
Northwest Group of Institutions
Dhudhike, MOGA
The document discusses capital structure and its theories. It defines capital structure as the proportion of long-term debt and equity used to finance a company's assets. A company's capital structure determines its risk and cost of capital. There are several theories on capital structure including the net income, net operating income, traditional, and Modigliani-Miller approaches. The optimal capital structure balances minimum costs and risks. Factors like tax rates, control, flexibility, and legal requirements influence a company's choice of capital structure.
Portfolio revision, securities, New securities, existing securities, purchases and sales of securities, maximizing the return, minimizing the risk, Transaction cost, Taxes, Statutory stipulations, Intrinsic difficulty, commission and brokerage, push up transaction costs, reducing the gains, constraint, Taxes, capital gains, long-term capital, lower rate, Frequent sales, short-term capital gains, investment companies, constraints, established, objectives, skill, resources and time, substantial adjustments, mispriced, excess returns, heterogeneous expectations, better estimates, generate excess returns, market efficiency, little incentive, predetermined rules, changes in the securities market, Performance measurement, Performance evaluation, superior or inferior, small investors, better performance, prompt liquidity, comparative performance, purchase and sale of securities.
1) Capital budgeting is the process of planning for capital expenditures that are expected to generate returns over multiple years. It involves evaluating potential long-term investment projects and determining which ones to undertake.
2) The document discusses various capital budgeting techniques for evaluating projects, including payback period, accounting rate of return, net present value, and internal rate of return. It also outlines the typical capital budgeting process of identifying, screening, evaluating, approving, implementing, and reviewing projects.
3) Key factors in capital budgeting include properly accounting for the time value of money, risk analysis, and ensuring projects will maximize long-term profitability for the company. Both traditional and modern discounted cash flow methods have advantages and
Many investors mistakenly base the success of their portfolios on returns alone. Few consider the risk that they took to achieve those returns. Since the 1960s, investors have known how to quantify and measure risk with the variability of returns, but no single measure actually looked at both risk and return together. Today, we have three sets of performance measurement tools to assist us with our portfolio evaluations. The Treynor, Sharpe and Jensen ratios combine risk and return performance into a single value, but each is slightly different. Which one is best for you? Why should you care? Let's find out.
Portfolio performance measures should be a key aspect of the investment decision process. These tools provide the necessary information for investors to assess how effectively their money has been invested (or may be invested). Remember, portfolio returns are only part of the story. Without evaluating risk-adjusted returns, an investor cannot possibly see the whole investment picture, which may inadvertently lead to clouded investment decisions.
The document discusses dividend policy and provides details about:
1. The meaning of dividend and dividend policy, and factors that affect dividend policy such as ownership considerations, nature of business, and investment opportunities.
2. Different types of dividends including cash dividend, stock dividend, property dividend, and debenture dividend.
3. Dividend policies of 5 major Indian IT companies - Tata Consultancy Services, Wipro, Infosys, HCL Technologies, and Larsen & Toubro Infotech - and their dividend yields for the fiscal year 2013.
Leverage refers to using debt, borrowed money, or derivative instruments to amplify gains and losses from investments or business operations. There are two types of leverage: operating leverage, which is the use of fixed operating costs, and financial leverage, which is the use of fixed financing costs. The document defines various leverage metrics such as degree of operating leverage (DOL), degree of financial leverage (DFL), and degree of combined leverage (DCL) which measure how changes in sales, operating income, and earnings per share are amplified through the use of leverage.
The document provides an introduction to strategic cost management (SCM). It discusses the limitations of traditional cost management including its short-term outlook, excessive focus on cost reduction, and reliance on internal factors. SCM is presented as having a long-term dynamic approach focused on achieving sustainable competitive advantages through product differentiation or cost leadership. The value chain concept is introduced as a way to identify value-adding and non-value adding activities within a company's processes. Porter's value chain model is described including primary and support activities.
Sales Excellence does not describe a state, but rather a continuous process. The Kienbaum Sales Excellence Model provides guidance in this process. It serves on a theoretical, as well as practical level, as it guides through the ten fundamental components of sales. It has proven itself in practice as an analytical and optimization tool used in various industries and sales segments.
This document discusses dividend policy and the various theories around it. It defines dividends and discusses Walter's model and Gordon's model, which propose that dividend policy affects firm value. It also covers the irrelevance theories of Modigliani-Miller and the traditional approach, which argue that dividend policy does not impact value. The document provides formulas for the different models and discusses their assumptions and criticisms.
Investment Decision — Capital Budgeting Techniques — Pay Back Method — Accounting Rate Of Return — NPV — IRR — Discounted Pay Back Method — Capital Rationing — Risk Adjusted Techniques Of Capital Budgeting. — Capital Budgeting Practices
Leverage refers to the use of borrowed funds to acquire assets in the hope that the returns will exceed the cost of borrowing. There are three main types of leverage: operating leverage measures the relationship between sales and operating income; financial leverage measures the relationship between operating income and earnings per share; and combined leverage measures the relationship between sales and earnings per share to indicate total risk. Operating leverage depends on fixed operating costs and how they impact profits with changes in revenue. Financial leverage focuses on how fixed financing costs, like debt, impact returns. Combined leverage assesses a company's overall risk from fixed costs.
The document discusses the cost of capital. It defines cost of capital as the minimum return expected by investors for providing capital to a company. It includes the costs of debt, equity, preference shares, and retained earnings. The weighted average cost of capital takes the costs of different sources of capital weighted by their proportions. Calculating cost of capital is important for capital budgeting and evaluating new projects and investments.
The Capital Asset Pricing Model (CAPM) uses beta to measure the non-diversifiable risk of a security and determine its expected return. CAPM assumes investors want to maximize returns and only consider systematic risk. It models expected return as the risk-free rate plus a risk premium based on the security's beta. The Security Market Line graphs this relationship between beta and expected return. Some researchers like Fama and French have expanded CAPM with additional size and value factors.
The Net Income (NI) approach proposes that a firm's value increases as it takes on more debt financing due to debt generally being a cheaper source of capital than equity. According to the NI approach, the costs of debt and equity remain constant regardless of capital structure, so the overall cost of capital declines as debt levels rise. However, the NI approach assumes unrealistic conditions like taxes being ignored and that more debt does not affect investor risk perceptions. It implies the maximum firm value occurs with 100% debt financing.
Activity based costing is considered to be useful only for Manufacturing Organizations whereas reality is that it is equally usefull to Service providers
This document discusses capital budgeting and methods for evaluating long-term investment projects. It defines capital budgeting as evaluating investments that maximize owner wealth over multiple years. Several evaluation methods are described, including payback period, net present value (NPV), internal rate of return (IRR), and profitability index (PI). The document recommends using NPV, as it considers all cash flows and their timing, incorporating the time value of money to determine the true profitability of investments.
Social Cost Benefit Analysis: Concept of social cost benefit, significance of SCBA, Approach to SCBA,
UNIDO approach to SCBA, Shadow pricing of resource, the little miracle approach,
Project Implementation: Schedule of project implementation, Project Planning, Project Control, Human
aspects of project management, team building, high performance team.
This document discusses receivables management. It begins by defining receivables as sales made on credit that represent amounts owed to a firm from customers. Effective receivables management involves establishing credit policies, evaluating customer creditworthiness, and controlling receivables. The objectives are to maximize return on investment in receivables while allowing sufficient sales growth. Key aspects covered include granting credit, costs of receivables management, collection methods, and analysis of receivables aging and customer importance.
This document discusses value chain analysis, which was first proposed by Michael Porter in 1985. It involves identifying a firm's primary and support activities that add value to its products or services and analyzing them to reduce costs or increase differentiation. The key stages of value chain analysis for strategic cost management are identifying activities, establishing their costs and importance, comparing costs, identifying cost drivers, and finding opportunities to reduce costs or improve value through internal and external linkages. This allows firms to assess their competitive positioning and strategically improve quality, reduce time and costs, and increase benefits for both the firm and partners in the value chain.
A simple and comprehensive presentation on Profit maximization v/s Wealth Maximization.
By Arvinder Pal Kaur
Faculty of Management
Northwest Group of Institutions
Dhudhike, MOGA
The document discusses capital structure and its theories. It defines capital structure as the proportion of long-term debt and equity used to finance a company's assets. A company's capital structure determines its risk and cost of capital. There are several theories on capital structure including the net income, net operating income, traditional, and Modigliani-Miller approaches. The optimal capital structure balances minimum costs and risks. Factors like tax rates, control, flexibility, and legal requirements influence a company's choice of capital structure.
Portfolio revision, securities, New securities, existing securities, purchases and sales of securities, maximizing the return, minimizing the risk, Transaction cost, Taxes, Statutory stipulations, Intrinsic difficulty, commission and brokerage, push up transaction costs, reducing the gains, constraint, Taxes, capital gains, long-term capital, lower rate, Frequent sales, short-term capital gains, investment companies, constraints, established, objectives, skill, resources and time, substantial adjustments, mispriced, excess returns, heterogeneous expectations, better estimates, generate excess returns, market efficiency, little incentive, predetermined rules, changes in the securities market, Performance measurement, Performance evaluation, superior or inferior, small investors, better performance, prompt liquidity, comparative performance, purchase and sale of securities.
1) Capital budgeting is the process of planning for capital expenditures that are expected to generate returns over multiple years. It involves evaluating potential long-term investment projects and determining which ones to undertake.
2) The document discusses various capital budgeting techniques for evaluating projects, including payback period, accounting rate of return, net present value, and internal rate of return. It also outlines the typical capital budgeting process of identifying, screening, evaluating, approving, implementing, and reviewing projects.
3) Key factors in capital budgeting include properly accounting for the time value of money, risk analysis, and ensuring projects will maximize long-term profitability for the company. Both traditional and modern discounted cash flow methods have advantages and
Many investors mistakenly base the success of their portfolios on returns alone. Few consider the risk that they took to achieve those returns. Since the 1960s, investors have known how to quantify and measure risk with the variability of returns, but no single measure actually looked at both risk and return together. Today, we have three sets of performance measurement tools to assist us with our portfolio evaluations. The Treynor, Sharpe and Jensen ratios combine risk and return performance into a single value, but each is slightly different. Which one is best for you? Why should you care? Let's find out.
Portfolio performance measures should be a key aspect of the investment decision process. These tools provide the necessary information for investors to assess how effectively their money has been invested (or may be invested). Remember, portfolio returns are only part of the story. Without evaluating risk-adjusted returns, an investor cannot possibly see the whole investment picture, which may inadvertently lead to clouded investment decisions.
The document discusses dividend policy and provides details about:
1. The meaning of dividend and dividend policy, and factors that affect dividend policy such as ownership considerations, nature of business, and investment opportunities.
2. Different types of dividends including cash dividend, stock dividend, property dividend, and debenture dividend.
3. Dividend policies of 5 major Indian IT companies - Tata Consultancy Services, Wipro, Infosys, HCL Technologies, and Larsen & Toubro Infotech - and their dividend yields for the fiscal year 2013.
Leverage refers to using debt, borrowed money, or derivative instruments to amplify gains and losses from investments or business operations. There are two types of leverage: operating leverage, which is the use of fixed operating costs, and financial leverage, which is the use of fixed financing costs. The document defines various leverage metrics such as degree of operating leverage (DOL), degree of financial leverage (DFL), and degree of combined leverage (DCL) which measure how changes in sales, operating income, and earnings per share are amplified through the use of leverage.
The document provides an introduction to strategic cost management (SCM). It discusses the limitations of traditional cost management including its short-term outlook, excessive focus on cost reduction, and reliance on internal factors. SCM is presented as having a long-term dynamic approach focused on achieving sustainable competitive advantages through product differentiation or cost leadership. The value chain concept is introduced as a way to identify value-adding and non-value adding activities within a company's processes. Porter's value chain model is described including primary and support activities.
Sales Excellence does not describe a state, but rather a continuous process. The Kienbaum Sales Excellence Model provides guidance in this process. It serves on a theoretical, as well as practical level, as it guides through the ten fundamental components of sales. It has proven itself in practice as an analytical and optimization tool used in various industries and sales segments.
The document discusses various techniques for cost management, including cost control and cost reduction. It defines cost control as regulating costs through executive action guided by cost accounting, while cost reduction aims to permanently lower unit costs without compromising quality. Key areas covered for cost reduction are product design, target costing, value analysis, value engineering, and value chain analysis. Product design offers the greatest potential for reducing costs if considered early in development. Target costing sets target costs by subtracting desired profits from market prices. Value analysis examines components and costs to find more economical ways to achieve functions, while value engineering improves value through examining and modifying functions.
This document provides an overview of cost advantage and strategic cost analysis. It defines cost advantage as when a company can produce a product or service at a lower cost than competitors. Companies can gain cost advantage through access to low-cost materials, efficient processes/technologies, or low distribution/sales costs. The value chain framework is used to analyze a firm's costs and identify opportunities to lower the cumulative cost of activities versus competitors. Key aspects of cost analyzed include behavior, drivers, dynamics, and determining relative costs of competitors. Ways to gain and implement a sustainable cost advantage are controlling cost drivers, reconfiguring the value chain, and following steps for strategic cost analysis.
Cost to serve (CTS) is a business model that calculates the overhead costs required to service each customer based on their activities. It provides an aggregate analysis of each customer's cost profile to determine their true profitability. Companies use CTS to model price leakages and specific costs related to serving customers. Costs are tracked as they are incurred during manufacturing and sales. CTS also uses Pareto analysis to identify the top causes that need addressing to resolve most problems and focus management on high impact risks.
A quality management system (QMS) is a collection of business processes focused on consistently meeting customer requirements and enhancing their satisfaction. It expresses an organization's goals, policies, processes, documented information and resources needed to implement and maintain quality management. Total quality management (TQM) is the art of managing the whole to achieve excellence, and ensures products and services satisfy customers at the appropriate time and price. It requires concepts like top management commitment, customer focus, continuous improvement, and teamwork. Six Sigma is a set of techniques and tools for process improvement that aims to reduce defects and variability in processes. It focuses on customer requirements, uses data to identify process variations, and involves people at different levels to continually improve processes and eliminate variations
Performance Measures for Supply Chain Management.pptxZahidColdstone
The document provides an overview of key concepts related to measuring performance in supply chain management. It defines supply chain management and its objectives such as value creation, sustaining competitive advantage, and customer satisfaction. It discusses why measuring performance is important for decision making, communication, and innovation. Finally, it outlines some of the topics that will be covered in the course, including supply chain performance indicators, measurement tools, and challenges of measuring performance.
The changing business environment manager's perspectiveLou Foja
Management is expected to ensure an organization uses its resources wisely, operates profitably, pays its debts, and abides by laws and regulations. To fulfill these expectations, managers establish goals, objectives, and strategic plans to guide the organization's activities. If organizations want to prosper, they must identify critical success factors like satisfying customer needs, developing efficient processes, and fostering employee career growth. Continuous improvement is needed to avoid complacency, and tools like just-in-time, total quality management, and activity-based management help organizations improve through a focus on quality, efficiency and cost reduction.
The changing business environment manager's perspectiveLou Foja
Management is expected to ensure that the organization uses its resources wisely, operates profitably, pays its debts, and abides by laws and regulations.
To fulfill these expectations, managers establish the goals, objectives, and strategic plans that guide and control the organization’s operating, investing, and financing activities.
Business Strategy Creating and Sustaining Competitive AdvantagesSeta Wicaksana
Effective strategies in an environment of constant change are a key requirement for success.
Corporate strategy: Deciding on the scope and purpose of the business, its objectives, and the initiatives and resources necessary to achieve the objectives.
The accuracy and Living in a house you own is still a dream for many people, and if you are finally ready to turn this dream into reality, you will want to do it right. Buying a plot is only the tip of the iceberg.
If truth be told, constructing a home is not as easy as it sounds. Moreover, with the increasing land rates, material prices, and labour charges, keeping the house construction costs under control is one of the most challenging aspects. However, with due diligence and planning in place, individual home builders (IHBs) can make significant savings on overall construction costs. In this blog, explore six different, yet connected, ways to reduce construction costs for you.
Smart Ways to Reduce Construction Costs for Home Builders
Choose the Right Plot
First things first, when it comes to building a house, the plot level plays a vital role. Try to select a land that is not only even, but also at the road level. If the plot is uneven, rocky or much lower than the road level on the front, it might increase the overall construction costs as you will require extra material or equipment for filling and levelling the land.Living in a house you own is still a dream for many people, and if you are finally ready to turn this dream into reality, you will want to do it right. Buying a plot is only the tip of the iceberg.
If truth be told, constructing a home is not as easy as it sounds. Moreover, with the increasing land rates, material prices, and labour charges, keeping the house construction costs under control is one of the most challenging aspects. However, with due diligence and planning in place, individual home builders (IHBs) can make significant savings on overall construction costs. In this blog, explore six different, yet connected, ways to reduce construction costs for you.
Smart Ways to Reduce Construction Costs for Home Builders
Choose the Right Plot
First things first, when it comes to building a house, the plot level plays a vital role. Try to select a land that is not only even, but also at the road level. If the plot is uneven, rocky or much lower than the road level on the front, it might increase the overall construction costs as you will require extra material or equipment for filling and levelling the land.Living in a house you own is still a dream for many people, and if you are finally ready to turn this dream into reality, you will want to do it right. Buying a plot is only the tip of the iceberg.
If truth be told, constructing a home is not as easy as it sounds. Moreover, with the increasing land rates, material prices, and labour charges, keeping the house construction costs under control is one of the most challenging aspects. However, with due diligence and planning in place, individual home builders (IHBs) can make significant savings on overall construction costs. In this blog, explore six different, yet connected, ways to reduce construction costs for you.
Smart Ways to Reduce Construction Costs for Ho
This document discusses strategic customer relationship management (CRM). It defines strategic CRM and its key components, including developing a customer-oriented culture, aligning organizational processes, capturing customer information, and implementing a CRM strategy. It provides examples from Capital One's CRM practices and IBM's large-scale CRM implementation. Overall, the document outlines an approach for conceptualizing and executing an enterprise-wide CRM strategy to maximize customer lifetime value.
Cost management is the process of planning and controlling costs associated with running a business. Strategic cost management aims to strengthen a company's strategic position by carefully controlling costs according to broader objectives. It combines cost information with decision-making to reinforce business strategy by measuring and managing costs in alignment with strategies. Strategic cost management offers a better understanding of an organization's cost structure to gain competitive advantage.
This document provides an introduction to an advanced management accounting course, outlining key topics that will be covered such as incremental analysis, capital investment decisions, standard costing, and contemporary issues in management accounting like activity-based costing, benchmarking, re-engineering, target costing, and total quality management. The introduction defines managerial accounting and explains how advanced techniques provide detailed financial information for internal management decision making.
1) The document discusses using Activity Based Costing (ABC) in logistics and supply chain management for cost optimization. ABC allows companies to better understand their costs and form appropriate pricing strategies.
2) ABC involves identifying activities, resources, and cost drivers to determine the costs associated with each activity and assign costs to final products. These principles can be applied to logistics processes like planning, procurement, and inventory management.
3) For ABC to be effective, it is important to integrate all logistics activities and units so cost reductions in one area do not increase costs elsewhere. Understanding trade-offs between units is key to reducing overall costs.
The document discusses marketing strategies and plans at different organizational levels. It covers developing marketing strategies through understanding customer value, strategic planning at the corporate and business unit levels, and creating marketing plans. Specifically:
- Strategic planning involves understanding customer value through activities like value delivery, value chains, and core competencies. It also covers core business processes and the role of the CMO.
- Corporate strategic planning establishes the mission, identifies strategic business units, allocates resources, and assesses growth opportunities through new businesses, downsizing, or terminating older businesses.
- Business unit strategic planning develops goals and strategies for each unit based on opportunities and threats in external and internal analyses.
- Marketing plans operate at strategic
The document discusses performance measurement in logistics. It defines key logistics costs including direct, indirect, capital and overhead costs. It also discusses how to categorize costs based on activities and allocate costs over appropriate time periods. A logistics audit aims to identify areas for improvement and unlock hidden value in the logistics system through a thorough independent review.
Different topics of management accountingkomal goyal
This document discusses responsibility centers and product life cycles. It defines responsibility centers as entities within an organization that are responsible for managing revenue, expenses, and investment funds. There are four main types of responsibility centers: cost centers, profit centers, investment centers, and revenue centers. The document also discusses target costing, which is setting a target cost for a product based on the desired selling price and profit. It outlines the objectives, applications, and limitations of using target costing. Additionally, the document covers value chain analysis and Porter's value chain model for analyzing a firm's activities to identify sources of competitive advantage. Finally, it defines transfer pricing as the price charged between different parts of the same company.
Present.profitability analytics framework ima san antonio finalFernando Pico
The Profitability Analytics Center of Excellence (PACE) promotes a framework for profitability analytics that incorporates causal modeling. The framework includes revenue, cost, and investment models that quantify relationships between key elements based on causal factors rather than just correlations. By embedding causality into strategic planning, forecasting, and decision-making, management can better understand economic realities and manage the business toward strategic goals.
Similar to Strategic cost management devika rajagopal (20)
2. What is strategic cost management ?
• Strategic cost management is a program established
businesses use in order to regularly identify and
analyze cost drivers to lower costs and maximize
total value.
• By implementing a strategic cost management
program, businesses can not only lower their costs
but also create a strategic competitive advantage.
• Applications of this type of management program
include creating a strategic plan, setting priorities in
operations and ensuring it is using limited resources
appropriately.
3. Strategic cost management equals Profit
• A strategic cost management plan is an in-depth
solution that brings transparency to your costs.
• Once a strategic cost management Plan is in place
organization executives and managers can make
timely and effective cost management decision.
• A strategic cost management system can also show
you who your most profitable and costly customers
are and why they are profitable or costly.
4. Framework of strategic cost
management programs
• The first component includes its core functions.
• The next component focuses on the added value of
activities .
• The last component of the framework are the
activities that support the core activities.
5. Steps for strategic cost management
• Reviewing the strategies of the business.
• Train team members to implement the strategic
management plan.
• Fact finding .
• The findings should then be analyzed and
recommendations for changes to be made.
• If changes are necessary, an employee should be
made accountable for overseeing each change.
6. Tips for having an effective strategic
cost management program
• Having the full support of top management.
• Integrating information systems to streamline
processes .
• Implementing effective cross-functional teams.
7. SCM’S COMPOSITION
• Strategic cost management is a blend of
– Value chain analysis (how we organize our
thinking about cost management?)
– Strategic positioning analysis (what role does cost
management play in the firm?)
– Cost driver analysis
8. VALUE CHAIN ANALYSIS
• Value chain concept is to detail the various stages of
the product corresponding to a field of activity, from
raw materials to after-sales service. This is the most
cost effective routing relevant.
• Value Chain Analysis describes the activities that take
place in a business and relates them to an analysis of
the competitive strength of the business
• Value Chain Analysis is one way of identifying which
activities are best undertaken by a business and
which are best provided by others ("out sourced").
9. Strategic positioning analysis
• The concept of strategic positioning is about finding
the answer to the question: what role cost
management plays in an organization?
• In the strategic cost management (SCM), the role of
cost analysis differs depending on the method
chosen by the company in the competitive struggle,
namely: a) on one hand, a company can compete
with low costs. b) on the other hand, a company can
compete by offering superior products
10. Cost driver analysis
• The third component of the strategic cost
management is analysis the sources of cost
• Grouping of cost sources into two
categories, namely:
-Structural
- Sources of performance
11. Techniques that support strategic
cost management
• Calculation and management of activities
• Determining cost attributes
• Benchmarking
• Monitoring the position of competitors
• Costing competitors
• Analyzing customers
• Integrated performance measurement
• Life cycle cost
12. Techniques that support strategic cost
management
• Cost of quality
• Strategic approach to calculation
• Strategic approach to pricing
• Target cost system
• Value chain analysis
13. Companies that offer SCM service
• Wipro’s Strategic Cost Management exercise
provides Cummins with a 30% reduction in
material cost
• Achieving Sustainable Growth through Strategic Cost
Management :Accenture Cost Management Survey
14. CONCLUSION
In today's era organizations are trying hard
to reduce their costs. Ascertaining cost and finding
out the ways to reduce it has become the main issue
for the organizations By following certain steps and
framework of cost management like SCM, an
organization can effectively and efficiently
implement some good strategies related to reduction
of costs and that in turn will decide the future
competitive advantage of the companies trying to
maintain their market share and brand image in the
tough competitive markets
15. REFERENCES
• Article :“STRATEGIC MANAGEMENT OF COSTS - THE MAIN TOOL OF
COMPETITIVE ADVANTAGE IN THE CURRENT ECONOMIC ENVIRONMENT “
By CORINA MICULESCU, MARIUS NICOLAE MICULESCU,.
• Shank and Govindarajan’s “Strategic Cost Management”: The New Tool for
Competitive Advantage.
• http://www.wipro.com/Documents/resource-center/strategic-cost-
management-for-cummins-indias-leading-manufacturer-of-diesel-
engines.pdf
• http://www.accenture.com/in-en/Pages/service-supply-chain-
management-overview-summary.aspx
A cost driver is the unit of an activity that causes the change in activity's cost. Examples: In marketing, cost drivers are Number of advertisements, Number of sales personnel etc./ outperform its competitors./Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy.In today’s highly competitive environment, cost management has become a critical survival skill for many firms. But it is not sufficient to simply reduce costs; instead, costs must be managed strategically. Strategic cost management is the application of cost management techniques so that they simultaneously improve the strategic position of a firm and reduce costs. Strategic cost management can be applied in service and manufacturing settings and in not-for-profit environments.
transparency to your costs for efficient business processes, departments, products and IT services/make timely and effective cost management decisions based on facts and data instead of just looking at an enormous number on a P&L statement/A good strategic cost management system will have economic modeling built-in so that organizations will know what the outcome of a cost or spend measure will produce/
management must define the nature of the business and its courses of actions for planning, product development, and research and development./such as customer service, technical support, marketing, sales and manufacturing/are the activities that support the core activities. These include IT, human resources, general administration, accounting and finance.
Steps for strategic cost management include reviewing the strategies of the business to develop a plan to encourage increased internal communication and identify any performance gaps./ Afterwards, management should train team members to implement the strategic management plan/. The management team should then dive into fact finding by gathering data, interviewing employees, conducting surveys and developing benchmarks./ The findings should then be analyzed and recommendations for changes to be made/. If changes are necessary, an employee should be made accountable for overseeing each change with responsibilities clearly defined, as well as for making sure there is a system in place for continuous improvement.
Management should understand the importance of the program and how their role adds value, otherwise they may be reluctant and uncooperative during the implementation and continuous improvement stages./ Information systems are used for quickly gathering and analyzing data, as well as for making sure that the right information gets to the right people in a timely manner/. Using cross-functional teams is beneficial when cost drivers affect more than one department, as these departments must work closely together to regulate them.
(1) Primary Activities - those that are directly concerned with creating and delivering a product (e.g. component assembly); and (2) Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management/What activities a business undertakes is directly linked to achieving competitive advantage. For example, a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition. By contrast, a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities, or a reduction in the total amount of resources used./Value chain analysis can be broken down into a three sequential steps:(1) Break down a market/organisation into its key activities under each of the major headings in the model;(2) Assess the potential for adding value via cost advantage or differentiation, or identify current activities where a business appears to be at a competitive disadvantage;(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
: a) on the one hand, a company can compete with low costs. These strategies are based on the ASSUMPTION that the most competitive company has the lowest costs, in other words, minimizing company costs are based on its competitive advantages (attract customers by low prices). b) on the other hand, a company can compete by offering superior products (differentiation)..
"structural sources" refers to the economic structure of the company and depend on: the scale,, experience, technology and production complexity. / scale, which sets how much should be investing in production, design and marketing;; experience which considers the number of times in the past has made the company what it wants to achieve at present; technology, that are considered technological processes used in each step of the value chain of the company; complexity, which refers to how wide is the range of products / services offered to customers.// The second cost source is formed by "sources of performance", which refers to the ability to perform well operations. Unlike structural sources for each "source of performance", "more" is always "better". Main sources of performance include: • workforce (labor force participation in continuous improvement activities); • total quality management (hopes and achievements in the quality of products and processes); • capacity utilization;
he Accenture Cost Management Survey related to banks : • Managing aggressive cost reduction initiatives.• Developing and continuing sustainable cost management programs. • Understanding the short- and long-term effects of cost reduction initiatives and cost management programs. Accenture provides clients with a solid approach to cost reduction. deliver effective cost reduction programs and meet a range of IT and business process outsourcing needs.Accenture’send-to-end strategic cost management capabilities facilitate smart planning as well as efficient implementation and optimization of ongoing operations