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29 Feb 2016
Filed under: Cost Management | Tagged:

What is Strategic Cost Management?

<br /> Brian Bastible

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Brian Bastible

Strategic Cost Management is a term that is regularly used in business but what does it mean?  A client asked me the other day what Strategic Cost Management is, so I gave my usual reply but on the way home thought, that is a really good question.

As so often is the case, the words themselves tell us the meaning but we just need to stop and think about it.  I picked up these definitions from research but I think they work well.

Strategic

Relating to the identification of long term or overall aims and interests and the means of achieving them.
So there must be a purpose, an end game or a place where we are trying to get to.  Crucially we need to understand what the strategic goal or objective is.

Cost

The expenses that we necessarily incur in the pursuit of those strategic aims.
In business this can normally be broken down into 3 broad areas;
1. The cost of core functions or operations. What we must spend in developing and delivering our product or service.
2. The cost of acquiring, retaining and growing our customers. Cost of revenue acquisition.
3. Activities that support core operations and customer activities for example, IT, Telecoms, Accounting, General Administration, etc

Management

The process of reaching organizational goals by working with and through people and other organizational resources.
Management has the following 3 characteristics:

1. It is a process or series of continuing and related activities.
2. It involves and concentrates on reaching organizational goals.
3. It reaches these goals by working with and through people and other organizational resources.

Strategic Cost Management is the ongoing process of ensuring that an organisation has the right partner suppliers, at the right service level and at the right price to ensure that the organisation can deliver its long term goals and objectives.

It makes so much sense when it is described like that so all businesses must be doing this. Surprisingly no, separate research by Management Today and Accenture shows that only 30% – 40% of organisations consider their own cost management activities to be strategic.

Why? Time, knowledge, resources, tools?

The interview by Management Today with Chris Allison, CEO of Auditel addresses some of these questions.

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