Cost Management and Strategic Decision Making

Date:  2021-03-22 06:51:24
7 pages  (1805 words)
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This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

The strategic decision is that decision that is made with the linkage of the firm with the environment. Strategic decisions are concerned with the product selection and the product mix which the company can produce and select so that the market can sell their products. Strategic decision-making is usually based on the strategy that involves the actions of the organizations. It is a primary choice of the activities that concerns with the allocation of the resources and the contribution of the achievement of the objectives set aside by the organization (Coad & Cullen, 2006). The strategic decision affects the whole part of the organization and greatly to the responsibilities of the senior management.

It also contributes to the achievement of the set objectives and the actions carried out like cost management. Cost management is paramount to the organization as it can be used to measure and report the cost that has occurred cost management always focuses on the future impacts of the current or proposed decisions (Coad & Cullen, 2006). Cost management is an organizational commitment, a set of techniques and professional attitudes that create more value at lowering the cost. Cost management and strategic decision-making can be discussed based on its historical perspective, current happenings, and its importance.

Historical Perspective

Over a period of years, development of cost management has been achieved through various ways. Cost management dates back in ancient times since it is considered to be the oldest managerial tools that were used to determine the amount of taxes that were taken by kings or the price that people would use to sell and buy their commodities (Coad & Cullen, 2006). The trading people of that time had to be experts in determining the costs so as to manage their spending. In the accounting history, what is believed is that the double-entry system of accounting system started with Luca Paciolis Summa that was established in 1494 (Coad & Cullen, 2006). Facts in the accounting, however, indicate that double entry for bookkeeping was done and was already practiced by the Vietnam merchants and other Italian merchants. Researchers claim that this was a stepping stone that was laid in the recognition of modern bookkeeping.

The growth of business in the ancient times made the accounts grow though in an easy way. The system of account records was very crude when compared to the current developments, but they were making progress (Coad & Cullen, 2006). At around 1350, the firm was able to have prime costs whereby operations of the expenses were done on accounting books together with the result of trading or the commercial activity. The company later developed the laborer's wage book and the dyer's salary book (Lorenzoni, Shank, & Silvi, n.d.). The books were what recorded every transaction that related to any purchase done on the daily basis. The books were later periodically summarized, and the balances were subsequently transferred to the ledger book which had a lot of similarity to the new ledger used.

An example of cost management in the seventeenth century indicates that the members of the Worship Company prepared a cost statement to show how their selling price of the baked bread in 1620 was not as adequate as it was expected to cover the cost of baking. The system revealed several cost management principles between 1759 and 1786 (Lorenzoni, Shank, & Silvi, n.d.). The company had obligations to charge individuals managers and departmental heads with the task o cost management as early as in the 1760s.

The nineteenth century was considered as the formal beginning of cost and management since it was characterized by the emergence of a large business enterprise. The period was considered as the industrial revolution, and it was during this time that England and US witnessed the upshot of the cotton textile factories which used cost accounting to assure the labor (Coad & Cullen, 2006). It was this era that the advancement of cost and management of iron and steel together with infrastructure construction rose.

According to the International Federation of Accountants, the first management accounting revolution was referred to as the Classical period. The period ended up in the 1950s, and there was little or no contribution to the cost accounting (Lorenzoni, Shank, & Silvi, n.d.). The industrial revolution of the 18th and 19th century created a great need for the cost information to be capable of coping with the business operations of the complex time. Accountants were required to provide relevant information necessary to control the expenditure and fix the prices in a real decision-making process.

Current happenings on Cost Management and Strategic decision-making

In the 21st century, the cost management techniques and the decision-making processes have adopted new strategies especially due to the adoption of the new technology at the workplace. The senior management and the business accountants are currently adopting the developments in business intelligence (BI) and finance transformation (finance function) as a way of enhancing business decision making and its performance. The inclusion of these aspects ((BI) and (finance function)) provides new opportunities to the firms to releases their accountants or excessive roles enabling them to take on decision support roles hence improving decision making. More so, the adoption of new techniques that are technologically incorporated allows the companies to stimulate stalled finance transformational projects (Improving decision making in organizations: Unlocking business intelligence, 2008).

Besides the transformation of finance function as a way of enhancing accounting operations efficiency, most firms are currently employing the use of Business Intelligence (BI) technology because it incorporates the management tools that help the accountants to perform organizations report analysis. The adoption of this technology is becoming widely acceptable in various sectors, small firms as well as the big ones as it helps the companies to achieve competitive advantage.

The BI technology does not only focus on the company's hardware and software but emphasizes more on the firms data. The perspective is that the data of any company is part of its strategic assets and it they can provide valuable information, which if implemented can enhance decision-making in a company. Business Intelligence has twofold significance in an organization set up. First, BI can be used to access, extract, assemble and store data that when analyzed can provide useful reports. It can also be applied to the analysis applications, reporting or as a performance management tool.

The advantages of adopting the BI technology in the Cost Accounting and Strategic Decision making in a firm is that it provides a wide range of information in more accessible formats. By combining both financial and non-financial information, BI enables the management to perform a more forward-looking analysis besides monitoring and reporting the data (Improving decision making in organizations: Unlocking business intelligence, 2008). Business Intelligence releases the accountants the hard tasks of reporting cycle so that they can take on decision-making roles.

The application of the new Business Intelligence technology in the discipline of cost management and strategic decision making has significant impacts on the firms. For instance, due to the transformation of the accounts functions, the organization will be looking to hire accounts that are well equipped with technical accounting expertise. More so, the application of the Business Intelligence will combine the management and accounting skills to promote decision-making.

New technology is changing the focus cost management to emphasize more on of transparency reporting, financial controls, and risk management. On the other hand, the management accountancy is expanding to incorporate the management skills that can support decision making. Due to these changes, firms will be looking for management accountants who have combined financial expertise as well as business understanding as they have the potential to promote decision-making in a wide range of roles in a firm.

Importance of Cost Management and Strategic Decision-Making In a Business Environment

Cost management and strategic Decision making can be used to determine the product that should be bought or even sold in any firm. A business owner might be able to ensure that the focus on the marketing efforts and to evaluate this decision, the accounting manager is bound to examine the cost that differs between the alternatives and the product that is being advertised (Teirlinck & Spithoven, 2012). The process is considered as cost analysis, and it is advantageous in the discontinuation of operations.

It is the management of cost that allows the manufacturer to consider whether to make or buy a commodity (Teirlinck & Spithoven, 2012). The manager determines whether that choice he or she is making is preferable. There could be some of the non-financial metrics that could be important in the consideration of the part of the analysis.

It gives the management the sense of commitment whereby the organization improves because it promotes the idea of continuity in helping the organization to make informed and right decisions (Teirlinck & Spithoven, 2012). Cost management allows the presentation of a professional attitude that is proactive in that all the costs and the products results from the managerial decision. Cost does not only happen, but it is also managed and planned for it to happen.

Cost management and decision making can be a set of reliability whereby adverse performance measures to do an assessment of the impact that the decisions made would have on the organization. A cost management system is used as a set of cost management techniques that function together to support the goal and the missions of the organizations (Teirlinck & Spithoven, 2012). The topic is relevant as it assists the cost management analysis together with the on financial information to improve the performance, profit, and the process altogether.

The decision making that is very strategic assist in the reinforcement of a purposeful activity which can cause more value creation when the cost is lowered resulting in a proactive attitude which acts as a decision drive costs (Teirlinck & Spithoven, 2012). Cost management and strategic decision making are helpful and relevant in the business environment since it enables a certain degree of subjectivity since it allows assessment of the intangible costs and the benefit of choices. Things like the opportunity cost are what enable the management to realize the consequences of its choices when making decisions.

It is also important as the relevancy of cost can either reduce or avoid by making a particular decision. Cost management enables the analysis of costs to identify and eliminate sunken stocks such as the consulting fees and can be prevented in the future.

 

References

Coad, A. & Cullen, J. (2006). Inter-organizational cost management: Towards an evolutionary perspective. Management Accounting Research, 17(4), 342-369. http://dx.doi.org/10.1016/j.mar.2006.02.003

Improving decision making in organizations: Unlocking business intelligence. (2008) (1st Ed.).

Lorenzoni, G., Shank, J., & Silvi, R. Networked Organizations: A Strategic Cost Management Perspective. SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.1012643

Teirlinck, P. & Spithoven, A. (2012). Formal R&D management and strategic decision making in small firms in knowledge-intensive business services. R&D Manage, 43(1), 37-51. http://dx.doi.org/10....

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