Cost management are those calculated activities that an organization performs in the bid to reducing cost. Traditional management accounting system has been accused of being a cost containment process whereby managers of divisions work towards meeting the standards as contained in the budget.
Inherent wastages and inefficiencies that are within the traditional cost processes are encouraged if the sole aim of all leaders in an organization is to ensure that budgets are strictly adhered to. This is an ugly and regrettable situation that still exists in businesses, even in this modern day and age.
It is believed that one of the reasons for this wasteful attitude of managers is the fact that a lot of managers are not well grounded in the art of cost management techniques. Hence, this article is written to explain what cost management is, distinguish cost management from cost and management accounting, state and briefly explain the features and characteristics of quality cost management system.
What is cost management?
A cost management accounting is a process of collecting, collating, analysing, interpreting and communicating expenses with the aim of making recommendations for improvements. Notice the emphasis on the salient distinction from cost accounting which has the primary aim of gathering cost related information with the aim of using costs so gathered for pricing decisions.
Difference between cost management and Cost Accounting
The main difference between cost management and cost accounting lies in the purpose of gathering cost information. Cost management is more strategic in nature as it aims to ensure that companies are profitable.
Whereas, cost accounting is concerned with ensuring that complete cost information of a product or service is gathered to help decision makers make pricing decisions.
Cost management looks for ways of eliminating expenses without compromising quality, while cost accounting looks for ways of capturing all forms of costs.
Cost management helps businesses predict future costs and then recommend ways of reducing identified wastages from the process in order to save cost.
Features, Components and Characteristics of Cost management system
- Diagnostic ability
- Cost estimation
- Information gathering capability
- Cost baseline information
- Monetary quantification of wastages
7 Importance of cost management
Below are seven (7) importance of cost management. Please note that the ones listed here are the most important benefits of cost management. The list could be longer depending on whom you are talking to and from where.
- Saves costs
- Improves processes
- Motivates managers
- Improved financial management
- Gives insight into planning
- Brings budget into limelight
- Ensures that requirements and scope of a project are kept in check