Learning Objectives :
 Explain what strategy is
 Explain the objectives, scope and
benefits derived from proper cost
management
 Explain
how
management
information is used
Overview of Cost Management and Strategy

Managers must think and act competitively that requires a
strategy. due to:
Global competition,
trade wars among countries,
technologicaI innovations and
changes in business processes
➢
Strategy
set of policies, procedures and approaches to business that
produce long term success.
➢
Strategic management
involves the development of a sustainable competitive position.
➢
Strategic Cost Management –
involves the development of cost management information to
facilitate the principal management function which is strategic
management.
Cost management information
information that the manager needs to effectively manage the
firm
which includes both financial information and relevant
nonfinancial information about productivity, quality and other key
success factors for the firm.
Cost management
practice of accounting in which the accounting develops and
uses cost management information.

Importance should also be given to non financial and long
term measures of operating performance such as:
product and manufacturing advances,
product quality and
customer loyalty.
➢
very important to the success of every firm.
important to meet changes.
Flexibility is
Cost Management Information

Users –
all organizations: business firms, government agencies, and not
for profit organizations,/non government organizations (NGOs)
Uses of Cost Management Information
1.Strategic management –

make sound strategic decision regarding the choice of
products, manufacturing methods, marketing techniques and
channels and other long terms issues.

emphasis which Skills from all business functions namely
marketing, production, finance and accounting/ controllership
must combine to have a dynamic and competitive environment.
2. Planning and decision making

involves budgeting and profit planning, cash flow management
and other decisions related to the firm’s operations

such as whether to lease or buy, whether to replace or repair
equipment, when to change a marketing plan or when to begin
new product development.
3. Management and operational control
identifying inefficient operations and to reward and motivates
the most effective manager.

Operational
control
takes
place
when
mid
level
(product/regional manager ) monitors and manages the
operating level manager and employees.

Management control manages and monitors the mid level by
the upper level (CEO/Controller)
4. Reportorial and Compliance to legal requirements
required to submit
financial requirements by government
agencies such as BIR,SEC, and other government agencies.

The financial statement information is important part of
planning, decision making control and strategic management.
Management Accountant role in strategic cost management

accountant develops and uses cost management information.

Management accountants are the accounting professional who
develop and analyze cost management information and other
accounting information making rational decisions.

involves the application of appropriate techniques and concepts
to economic data to assist management in establishing plans for
reasonable economic objectives
Management accountants do the following tasks:
1.Scorekeeping or data accumulation

which enables both internal and external parties to evaluate
organizational performance and position
2.Interpretating and reproting of information

that helps manager focus on operating problems, opportunities,
as well as inefficiencies.
3.Problem solving or quantification of the relative merits of possible courses of
action as well as recommendations as to the best procedure.
➢
It is commonly associated with non recurring decision.
Three guidelines help management accountants provide the cost value
A. Employ a cost benefit approach
useful for making resource allcoation decision
B. Recognize behavioral as well as technical considerations and
C. Use appropriate cost concepts for different purpose
Management accountant provides a system which allows management
to receive the necessary information and in performing its
administrative functions:
A. Planning

which involves setting of goals for the firm, evaluating the various
ways to meet the goals and picking out what appears ro be the best
way to meet the goals.
B. Controlling

which involves the evaluation of
confirms worth the planned goals,
whether actual performance
C.Decision making
➢
which involves determination
of productive information (e.g.
relevant costs) for making important business decisions.
Planning

Involves identifying alternatives and selecting a course of action specifying how
the action will be implemented to further the organization’s objectives.

Plan communicates the company’s goals to employees and specifies the
resources needed to achieve them.

Expressed formally in budgets.
Cash budgets, capital budgets and projected statements of financial position
are examples of contributions which accounting can make in resource planning
break even analysis, projected income statements are examples of useful tools
in profit planing
Control
➢
Achieved by evaluating the performance of managers and the operations for
which they are responsible
➢
Managers are evaluated to determine how their performance should be rewarded
or punished which motivates them to perform their at a high level.
➢
Cost variance analysis, financial statements analysis, gross profit variance
analysis are some of the accounting control reports used to inform managers
when activities are deviating from the plan.
➢
These reports evaluate the performance of managers and the operations they
control are referred to as performance reports.

These reports involve comparison of current period performance with
performance in prior period or with planned (budgeted) performance.

Managers follow the principle of management by exception when using
performance reports.

They investigate departures from plan that appear to be exceptional.

Operations are evaluated to provide information as to whether or not they
should be changed ( I.e. expanded, contracted, or modified in some way).

Managers compare actual results with planned result and decide if
corrective action is necessary.
If it differs, the plan may not be followed properly, the plan may have not
been well thought out or changing circumstances may have made the plan
out of date.
Planning and Control Process
➢
major steps on the planning an d control process. Once a plan has made,
actions are taken to implement it,
➢
These actions led to results which are compared with the original plan.
Based on evaluation,
➢
managers are rewarded ( given substantial bonus or promoted if
performance is judged to be good) or
➢
punished ( only small bonus, given no bonus, or even fired if performance
➢
operations may be changed.
Changes may consist of expanding (e.g. adding second shift),
contracting (closing of production plant) or
improving operations ( training of employees better job answering
product inquiries).
Changes may also consist of revising to do an unrealistic plan .
Decision making

It is an integral part of planning and control process

decisions are made to reward or punish managers and decisions are
made to change operations or revise plan.

These decisions will determine future profitability and possibly
survival of the company.

The management accountant develops cost management information
for the Chief Financial Officer other manager and employees teams
are use to manage the firm and the firm more competitive and
successful.
Planning and Control Process
Plan
Decisions to change
operations or revise
Actions
Results
Decisions to reward
or punish managers
Evaluation
Relationship of Cost Accounting and Management Accounting
Cost accounting

systematic set of procedures for recording and reporting
measurements of the cost of manufacturing goods and performing
services in the aggregate and in detail.

includes methods for recognizing, classifying, allocating, aggregating
and reporting such costs and comparing them with standard costs.
Cost management
➢
needs the ouput of cost accounting.
➢
provides managers with information which aids decision.

use cost management information to choose strategy,
communicate it and to determine how best to implement it.

use this information to coordinate their decisions about designing,
producing and marketing a product or service.
to
Strategic Decision and the Cost management Accountant

The key to company’s success is creating a value for
customers while differentiating itself from its competitors.

Identifying how a company will do this is what strategy is all
about.

a chosen strategy is only as good as how efectively it is
implemented.

provides input that aids in developing strategy, building
resources and capabilities, and implementing strategy.

To understand the management accountant’s role, we must
first understand the manager’s tasks in more detail.
The Professional Environment of Cost Management
Organization
Accountant
Structure
and
the
Management
Major function of the management accountant

tailoring the application of the process to the
organization so that the organization’s objectives,
short term and long term, are achieved effectively.
 provide line managers and also staff managers, with
specialized services that includes advice and help in
the areas of budgeting, controlling, pricing and
special decisions.
Line authority
 authority
to command action or give orders to
subordinates.
 Line managers are directly responsible for attaining
objectives of the business firm as efficiently as
possible.
Staff authority
 is the authority to advise but not command others;
 it is exercised laterally or upward.
 Staff managers give support, advises and service to
line departments.
 Example of
staff authority are found in personnel,
purchasing, engineering and accounting.
The Controller
 generally
fills the staff role in his company as
contrasted with the line roles of sales and
production services.
 transmits the
best accounting procedures to be followed
by the line people of the President who will communicate
such manual of instructions.
 delegated authority from top management to direct the
line people on how to apply these procedures.
 This is known as functional authority which is the right
to command action, laterally or downward with regard to
a specific function or speciality.
The Chief Financial Officer and the Controller
The Chief Financial Officer (CFO) –
 also
called the finance director, is the executive
responsible for overseeing the financial operations of an
organization.
The responsibilities of CFO are:
 Controllership
includes providing financial information
for reports to managers and reports to shareholders and
overseeing the overall operations of the accounting
system.
 Treasury – includes banking and short and long term
financing, investments and management of cash.
 Risk management -
includes managing the financial
risk of interest rate and exchange rate changes and
derivatives management.
 Taxation
– includes income taxes, sales taxes and
international tax planning.
 Internal
audit – includes reviewing and analyzing
financial and other records to attest to the integrity
of the organization’s financial reports and to
adherence to its policies and procedures.
 In
some organizations, the CFO is also responsible
for information systems.
The Controller also called the Chief Accounting Officer
 financial
executive
primarily
responsible
for
management accounting and financial accounting.
 By
reporting and interpreting relevant data (problem
solving and attention directing roles) the controller exerts
a force or influence that impels management toward
making better – informed decisions.
The Controller as the Top, Management Accountant
 Controllership is the practice of
of control
the established science
 the process by which management assures itself that the
resources are procured and utilized according to plans in
order to achieve the company’s objectives.
 The
top managerial accounting position is held by the
controller

provides reports of planning and evaluating company
activities (e.g. budgets and performance reports)
 provides
information needed to make management
decisions (e.g. decisions related to construction of a new
factory or decisions related to adding or dropping a
product).
 has
responsibility for all financial accounting reporting
and tax filings with the BIR and other taxing agencies as
well as coordinating the activities of the firm’s external
auditors.
 Manufacturing
companies usually has cost accounting
department responsible to estimate costs to facilitate
management decisions and develop cost information for
purposes of valuing inventory.
Basic functions of Controllership
1. Planning –
 establish
and maintain an integrated plan of operation
consistent with the company’s goals and objectives, both
short and long term,

analysed and revised, as required, communicated to all
levels of management, with appropriate systems and
procedures installed.
2. Control –
➢
develop and revise standards against which to measure
performance and
➢
provide guidance and assistance to other members of
management in insuring conformance of actual results
to standards.
3. Reporting –
➢ prepare,
analyze, and interpret financial results for
utilization by management in the decision making
process,
➢ evaluate the data with reference to company and unit
objectives;
➢
prepare and file external reports as required to satisfy
government regulatory bodies, shareholders, financial
institution, customers and the general public.
4. Accounting –
 design,
establish and maintain general and cost
accounting system at all company levels, including
corporate, divisional, plant and unit
➢
to properly record all financial transactions in the books
of accounts and records in accordance with sound
accounting principles with adequate internal control.
5. Other primary responsibilities –
 manage
and supervise such functions as
including
interface
with
the
respective
authorities and agents;
taxes,
taxing
 maintain
appropriate relationships with internal and
external auditors;

develop and maintain systems and procedures,
 develop record retention programs,
 supervise assigned treasury functions, institute investor
and financial public relations programs;
 office management; and direct other assigned functions.
 The
financial planning and control functions are too
important to the success of the business enterprise.
Qualifications of the Controller
 An excellent technical foundation in accounting and
finance with an understanding and thorough
knowledge of accounting principles.
 An understanding of the principles of planning,
organizing and control.
 A general understanding of the industry in which
the company competes and the social, economic,
and political forces involved.
 A
thorough understanding of the company,
including its technologies, products, policies,
objectives, history, organization, and environment,
 The ability to communicate with all levels of
management and a basic understanding of the
other functional problems related to engineering,
production, procurement, industrial relations and
marketing.
 The
ability to express ideas clearly in writing or in
making informative presentations.
 The ability to motivate others to achieve positive
action and results.
 The controller must be able to work with people at all
tasks levels, have respect for the ideas and opinions of
others, and have the resourcefulness to meet all
challenges.
The Chief Financial Officer and the Treasurer
Treasurership
 Concerned
with the acquisition, financing and
management of assets of a business concern to
maximize the wealth of the firms for its owners.
 has custody of cash and funds invested in various
marketable securities. Or Money management.
 Responsible
for
maintaining
relationship
with
investors, banks, and other creditors.
 Preparing cash forecasts and obtaining financing from
banks and other lenders.
Treasurer’s responsibilities:
 Fund procurement- involves raising of funds in accordance
with the firms planned capital structure.
 Require negotiating loans, short term or long term, issuing
equity of debt instruments at the best terms and
conditions possible.
 Banking and custody of funds –
involves direct management of cash and cash equivalents
and maintenance of good relations with banks andother non
bank institution.
 Investment of funds –
involves management if the company’s placements and
securities or purchase of debt or equity instruments such as
ordinary or preference shares in other corporate entities.
 Includes analysis of decisions related to investment in
property, plant and equipment.
 Operating responsibilities related to
 Credit and collection
 Inventory management
 Corporate pension and retirement fund
 Investor relations
 Insurance
 Compliance
with legal and regulatory provisions
relating to funds procurement, use and distribution as
well as coordination of the finance function with
accounting function
Ethical standards for management accountants
 Code of conduct for management accountants
 Institute
of Management Accountants (IMA) issued
the Standards of Ethical Conduct for practitioners of
Management Accounting and Financial Management-
 which has two parts.
 First
part provides general guidelines for ethical
behaviour.

The
second
part
gives
specific
guidance
concerning what should be done if an individual
finds evidence of ethical misconduct within an
organization.
The
management
accountant
has
responsibilities in four broad areas namely:
1. To
maintain
competence
a
high
level
of
ethical
professional
2. To treat sensitive matters with confidentiality
3. To maintain personal integrity’
4. To be objective in all disclosing
 The ethical standards provide sound, practical advice
for management accountants and manager.
 They
require professional behavior,
avoiding conflicts of interest.
especially
in
 Standards
of Ethical conduct for practitioners of
Management accounting and Financial Management:
 They have obligation to the public, their profession, the
organization they serve and themselves to maintain the
highest ethical conduct.
1. Competency
❖ Maintain
an
appropriate
competence
by
ongoing
knowledge and skills
level
of
professional
development
of
their
❖ Perform their professional duties in accordance with
relevant laws, regulations and technical standards
❖ Prepare
complete
and
clear
reports
and
recommendations after appropriate analysis of
relevant and reliable information
2. Confidentiality
❖ Refrain
from disclosing confidential information
acquired in the course of their work except when
authorized, unless legally obligated to do so
❖ Inform
subordinates as appropriate regarding the
confidentiality of information acquired in the course
of their work and monitor their activities to assure
the maintenance of that confidentiality
➢
Refrain from using or appearing to use confidential
information acquired in the course of their work for
unethical or illegal advantage either personally or
through third parties
3. Integrity
❖ Avoid actual or apparent conflict of interest and advise
all appropriate parties of any potential conflict
❖ Refrain
from engaging in any activity that would
prejudice their ability to carry out their duties ethically
❖ Refuse
any gift, or hospitality that would influence or
would appear to influence their actions
❖ Refrain from either actively or passively subverting the
attainment of the organization’s legitimate and ethical
objectives
❖ Recognize and communicate professional limitations
or
other
constraints
that
would
preclude
responsibility judgment or successful performance
of an activity
❖ Communicate
unfavorable as well as favorable
information and professional judgements or opinions
 Refrain from engaging in or supporting any activity
that would discredit the profession
4. Objectivity
❖ Communicate information fairly and objectively
❖ Disclose
fully all relevant information that could
reasonably be expected to influence an intended
user’s understanding of the reports, comments and
recommendations presented.
Resolution of ethical Conflict
 Practitioners should follow the established policies of the
organization bearing on the resolution of such conflict.

If these policies do not resolve the ethical conflict, the
following courses of action should be considered:
❖ discuss
such problems with immediate superior except
when it appears that the superior is involved,
 presented initially to next higher managerial level. If
resolved, submit issues to the next
level.
❖ Review
not
higher managerial
of the such as audit committee,
committee, BOD , board of trustees or owners.
 Clarify
executive
relevant ethical issues by confidential discussion
with an objective advisor (e.g. Ethics Couseling Service)
to obtain better understanding of possible courses of
action
 Consult own atty. As to legal obligations and rights
concerning the ethical conflict
 After exhausting all levels of internal review, there
were no other recourse on significant matters than
resign from organization and submit informative
memorandum to an appropriate representative of
the organization. Notify other parties.
Company code of conduct
 Some companies place much emphasis on short
term profits that act unethically.
 Some of their reasons are:
 the organization expects unethical behavior
 Everyone else is unethical
 Behaving unethically is the only easy to get ahead
 Companies
adopted formal ethical codes of
conduct.
 Statements
of a company’s responsibilities to its
employees, its customers and the community in which the
company operates.

It gives broad guidelines proper behavior in a specific
situation. It can create strong customers and employee
loyalty.
Typical ethical challenges:
 Case A –
 A
managing accountant knows reporting a loss for a
division will result in layoffs and concerns about potential
products that are currently being capitalized which are R &
D costs rather than as expense.
 The division manager argues that the new product will be
successful and profitable but presents little evidence.
 The accountant
has many friends in the said division and
wants to avoid a personal confrontation with the division
manager.
 He faced an ethical dilemma.
Competence, objectivity
and integrity - the accountant should request the
manager to provided credible evidence that the new
product is commercially viable If not, R&D costs
should be recorded as expense.
Case B –

Packaging supplier biding for a new contract, offers
the management accountant
of the purchasing
company all expense paid week end to the Boracay
resort.

The supplier does not mention the new contract and
he is not a personal friend of the accountant.
 Involves confidentiality and integrity -
Appearance of
conflict of interest companies prohibits employees
from accepting favors from suppliers. This should be
discusses with immediate supervisor, if approved
subject to corporate policy.
 Certificate
of
Internal
Auditing
pass
a
comprehensive examination designed to ensure
technical competence and have the required
number of years of work experience.

Responsibility to develop effective systems to
detect anf prevent errors and fraud in the
accounting records.
Institute of Management Accountants (IMA)
 Principal organization of management accountants
in the US has instituted a program to provide
certifications for management accountants and
financial managers.

It developed standards of ethical conduct and
maintenance of an ethics hotline that members can
call to discuss ethical conflicts.
 Philippine
(PAMA)
Association
of
Management
Accountants
 Founded
primarily to provide its members with
educational and professional activities that supplement
in the knowledge of management accounting practices
and methods.
 Monthly
technical meetings, seminars and workshops
are held to present relevant and current topics.
Publication of technical materials to serve its members.
Codes of Conduct on the International level
 International
Federation of Accountant governs the
activities of all professional accountants throughout the
world. IFAC’s code also outlines the accountant’s ethical
responsibilities in matters relating taxes, fees and
commissions, advertising and solicitation , handling of
monies and cross border activities.
International Certifications
 Certificate of Management Accounting - who passed
rigorous qualifying examination, has met an
experience
requirement
and
participates
in
continuing educations. It is granted by Institute
Management Accountants (IMA).
 Certificate
of Public Accountant - met the pre
qualification educational requirements, passed the
CPA board exam and satisfied all other legal and
regulatory requirements of public accountant. Main
responsibility is to provide reliable assurance the
reliability of the information in the firm’s financial
statements.
Its continuing education arm
is the Philippine
Institute of Management Accounting which conducts
the Certificate in Management Accounting (CMA)
Program with the following objectives:
1. Establish
management accounting as recognized
profession by identifying the role of management
accountant and the underlying body knowledge
and by outlining a course of study by which such
knowledge can be acquired
2. To foster higher educational standards in the field
of management accounting
3. To
assist employees, educators and students by
establishing an an objective measure of an
individuals’ knowledge and competence in the field
of management accounting.
 Contemporary
Business Environment and Strategic
Focus of Cost Management
 Contemporary Business Environment
 Increasing
competition
continuous improvement
and
relentless
drive
for
 These changes include:
 An Increase in global competition
 Advances in manufacturing technologies
 Advances
in information technologies, the Internet,
and e-commerce
 A greater focus on the customer
 New forms of management organization
 Changes
in the social,
environment of business
political
and
cultural
 Adapting management accounting system to better meet
the management’s needs for information is crucial to an
organization’s survival when competing in global markets.
 Management
accountants use their management control
systems to support and reinforce manufacturing and other
operating strategies.
 Increase
in global competition and the changes in
management techniques that have created the need for a
new, strategic approach to management and to cost
management.
The Global Business Environment
 The growing number of alliance among large multinational,
the increasing trade agreements among countries indicate
clearly that the opportunities for growth and profitability
lie in global markets.
 As
low cost, high quality goods are traded
worldwide, most consumers are benefited. Manger,
business owners and investors benefit likewise when
sales and production activities are pursued in foreign
countries.
 Global business environment is very competitive and
firms need cost management information to sustain
competitiveness. They also need financial
and
nonfinancial information about doing business and
competing effectively.
 Advances in Manufacturing technologies
 To remain competitive in the face of
global competition
the increased
 Applied
in some Japanese manufacturing firms to
produce significant cost and quality improvements
using quality teams, and statistical quality control
 Some include just in time inventory method inorder
to reduce the cost and waste maintaining large
levels of raw materials and unfinished products
 A key competitive edge is to have ability to deliver
the product or service faster that the competition known as speed to market.
 Advances
in Information Technologies, the Internet
and E Commerce
 Most fundamental of all changes in recent years
 Rapid growth of internet based firms ( the dot-com’s
such as Amazon,eBay and E-trade) and the
increased use of Internet for business data
processing, communciation, and sales.
 Growing focue in cost management by reducing the
time required to process transactions, thereby
expanding the individual’s access to information
within the firm, the industry and the business
environment around the world.

A greater focus on customers

To succeed in their customer value should be the key focus of
businesses
 From
low cost production of large quantities to
quality, service, faster delivery and the ability to
respond to customer’s desire for specific feature.
 Cost management reports include specific measures
of customer preference and customer satisfaction
 Value of goods or service to the customer is affected
by such diverse attributes as product price, quality,
functionality, user friendliness, customer service,
warranty and maintenance costs.
 Creating better customer value for the same or lower
cost than of competitors
 Cost
information plays an important part in the
process called strategic cost management.
Strategic position such as
1. cost leadership
2. Superior product through differentiation
 Focus
on customer value means that management
accounting system should produce information about both
realization and sacrifice
 Requires an understanding of a firm’s value chain (internal)
and supply chain (external)
 New forms of management organization
 Shift
from financial and profit based measures of
performance
to
customer-related,
non
financial
performance measures such as quality, time delivery and
service
 From
hierarchical
command
and control
type
of
organization to a more flexible organizational which
encourages teamwork and coordination among business
functions
 Cost management practices include reports that are useful
to cross functional teams of managers; the reports reflect
the multinational roles of these teams and include a variety
of operating and financial information: product quality, unit
cost, customer satisfaction, and production bottlenecks,

Comparison of Prior and Contemporary Business Environments
Prior Business Environments
Type of
reported
Information
recorded
Management Organization
and Almost exclusively financial data
Contemporary Business Environments
Financial and operating data, the firm’s
strategic success factors
Management organization structure
Hierarchical, command and control
Network based organization forms,
teamwork focus-employee has mote
responsibility and cotnrol, coaching
rather than command and control
Management focus
Emphasis on the short term, short term
performance
measures
and
compensation, concern for sustaining
the current stock price, short tenure
and high mobility of top managers
Emphasis on the long term, focus on
criticl success factors, commitment to
the long term success of the firm,
including adding shareholder value
Basis of compensation
Manufacturing process
Manufacturing technology
Manufacturing
Standardization, economies of scale
Quality,
functionality,
customer
satisfaction
High volume, long production runs, Low volume, short production runs,
significant levels of in process and focus on reducing inventory levels and
finished inventory
other non value added activities and
costs
Assembly-line
automation,
isolated Robotics,
flexible
manufacturing
technology applications
systems,
integrated
technology
applications connected by networks
Required labor skills
Macine-paced, low level skills
Emphasis on quality
Acceptance of a normal or usual Goal of zero defects
amount of waste
Marketing
Relatively few variations,long product Large number of variations,
life cycles
product life cycles
Products
Markets
Largely domestic
Robotics,
flexible
manufacturing
systems,
integrated
technology
applications connected by networks
Global
short
 Changes in the Social, Political and Cultural Environment
of Business
 Include a more ethically and racially diverse workforce,
a renewed sense of ethical responsibility among
managers
and
employees,
and
an
increased
deregulartion of business by the national government
 Requires firms to be more flexible and adaptable and to
place greater responsibility in the hands of a more highly
skilled workforce
 Focus to the firm outside the production of its product or
provision of its service to the ultimate consumer and the
global society in which the consumer lives
 Strategic Focus of Cost Management
 Incorporate
the emerging and expected change in the
contemporary environment business into its business
planning and practices
 Customer-driven,
uses advanced manufacturing
technologies when appropriate, anticipates the
effect of changes in
regulatory policies and
customer taste, and recognizes its complex social,
political and cultural environment.
 Cost
management should focus not on the
measurement per- but on the identification of those
measures that are critical to the firm’s success.
 Phases
of the development of cost management
systems should consider the following:
 Stage 1: Cost management systems are basic
transaction reporting systems.
 Stage 2: as they develop into the second stage, cost
management systems focus on external financial
reporting. The objective is reliable financial reports;
accordingly, the usefulness for cost management is
limited.
 Stage
3: cost management systems track key
operating data and develop more accurate and
relevant cost information for decision making; cost
mangement information is developed.
 Stage
4 : strategically relevant cost management
information is an integral part of the system.
 Stage
1 and 2 cost development focus on the
management
accountant’s
measurement
and
reporting role.
 Stage
4 - management accountant becomes an
integral part of management, not just a reported
but a full business partner, with the skills of
identifying, summarizing and reporting critical
factors necessary for the firm’s success.
 Critical Success Factors (CSF’s)
measures the aspects
of the firm’s performance essential to its competitive
advantage and therefore to its success,

depend on the nature of the competition it faces.
 Cost Management and Accounting Systems
 Cost
management describe as the approaches and
activities of managers in short run and long run planning
and control decisions that increase value of customers
and lower costs of products and services.
 It
has broad focus -includes continuous reduction of
costs, planning and control of costs linked with revenue
and profit planning, to enhance revenue additional costs
to be incurred advertising and product modification.
 It is an integral part of general management strategies
and their implementation example include programs that
enhance customer satisfaction and quality and programs
to promote blockbuster new product development.
 When should the internal accounting system be changed?
 Surviving
organizations must meet the demand of
changing technologies and markets by revising their
business structures and organizational architecture.
 Accounting
systems record historical costs, which are
backward looking. Therefore, accounting numbers are
useful for decision making only under very strong
assumptions, primarily that the future will look like the
past.
 Integrative Framework
 Accounting
systems are used for both decision making
and control, support external reporting for shareholders,
taxes and government regulations. It is part of the firm’s
organizational architecture.
 This
analytical structure will help readers better
understand, use, and design future accounting systems as
well as other systems that evaluate and reward
performance and partition decision rights.
 Three significant managerial implications are derived
from these two observations:
1. Before
implementing an accounting or other
organizational change, it is important to understand
what is driving the change.
2. An accounting system should not be adopted merely
because other firms are doing so, they may be
reacting to a different set of external shocks.
3. An accounting system should not be changed without
concurrent, consistent changes in the way decision
rights are partitioned as well as in the performance
reward systems.
 All
three parts of the organization’s architecture
must be internally consistent and coordinated.
The determinants of business strategy, organizational architecture, and
firm value
Technological
innovation
Market conditions
BUSINESS STRATEGY
Asset structure
Customer base
Nature of knowledge creation
ORGANIZATIONAL ARCHIITECTURE
Decision rights partitioning
Separation of decision management from decision control
Centralization/decentralization
Performance evaluation system
Accounting system
Nonfinancial systems
Performance reward and punishment system
Compensation policy
Promotion policy
Incentives and actions
Firm Value