What Is Strategic Cost Management?

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  • Written By: Carrieanne Larmore
  • Edited By: Nancy Fann-Im
  • Last Modified Date: 01 September 2019
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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. This type of program is necessary for creating budget parameters and a structure for purchasing. 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. Developing strategies based on a cost management program helps businesses achieve its objectives while saving on costs. It also provides management enough information to determine if a new business model should be implemented.

Framework of strategic cost management programs generally include three components to be analyzed. The first component includes its core functions, in which management must define the nature of the business and its courses of actions for planning, product development, and research and development. The next component focuses on the added value of activities such as customer service, technical support, marketing, sales and manufacturing. The last component of the framework 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.

Tips for having an effective strategic cost management program include having the full support of top management, integrating information systems to streamline processes and implementing effective cross-functional teams. 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.


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Post 3

@Mor - There's got to be a better solution than "base every decision around money". I mean, if nothing else because most companies are selling to the same people who work for them. Firing a lot of those people isn't going to end up being good for business.

The strategic management process should take community into account, as well as things like the environment and the world at large. There are ways to make money without being jerk about it, and I refuse to believe that every company is made solely for the intention of making money. People want to run companies for all kinds of reasons. In some cases, money is just an essential extra.

Post 2

@Fa5t3r - Well, the thing is, the whole point of a company is to make money. If people can help them with that point, then that's great. But no one ever made a business with the intention of making other people money. They always come into existence because someone wanted to make their own money.

I know it sucks being laid off, but it's just the way the world works and companies shouldn't be expected to keep on extraneous staff just because they might hurt them when they let them go. If they didn't base their decisions on a strategic cost analysis, there would be no company left to keep all the other employees happy and able to pay the bills.

Post 1

This has always seemed like a euphemism to me. The kind that gets tossed around when people are being laid off. Companies should care about more than just the bottom line. When they start making it all about money, they end up destroying livelihoods.

And, unfortunately, the way things are going with all the new technology that's been taking over roles traditionally held by people, there is going to be more and more of this happening.

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