Different aspects of Strategic cost Management

Strategic cost management initiative is taken at the top and a dedicated team should be involved in the whole process of formulation, implementation and monitoring process.

A control standard is a target against which subsequent performance will be compared. Standards are the criteria that enable managers to evaluate future, current, or past actions. They are measured in a variety of ways, including physical, quantitative, and qualitative terms. Five aspects of the performance can be managed and controlled: quantity, quality, time, cost, and behavior.

Organization should have its own policy regarding recording and reporting of following information:

• Choice of strategic positioning, cost leadership or product differentiation;
• Choice of cost drivers, structural or executional;
• Cost reduction strategies with reference to value analysis;
• Value chain related activities;
• Periodic evaluation report;
• Strategic cost management framework for the firm
• List of tools applied by the firm as a part of strategic cost management.
• Any other types of reporting as required.

Effective control systems have key characteristics. These may be phrased as follows:

Suitable: The control system must be appropriate for the demands of the organization. It must be appropriate to the type and requirements of the task and the region to be managed. For example, the manufacturing department’s control system will vary from that of the sales department.

Simple: The control system should be straightforward to learn and use. A convoluted control system will lead to avoidable errors, misunderstanding, and irritation among personnel. When workers understand the control system well, they can correctly interpret it and assure its execution.

Selective: To be effective, the control system must concentrate on crucial, strategic, and significant aspects that influence performance. Insignificant deviations should not be investigated. Managers may save time and effectively address issues by focusing their attention on the most critical components.

Sound and economical: The control system should be both cost-effective and simple to maintain. Any system of control must explain the advantages it provides in comparison to the expenses it incurs. To save expenses, management should aim to impose the least level of control required to achieve the intended goals.

Flexible: Organizations must adapt to changes in the competitive, technical, and environmental landscape. As a consequence, control should be flexible. It must be adaptable enough to cope with unpleasant developments or capitalize on fresh possibilities.

Forward-looking: A good control system should be forward-looking. It must offer timely information about deviations. Any deviations from the standard should be detected as soon as feasible. This allows managers to take corrective action as soon as problems arise.

Reasonable: According to Robbins, controls must be fair. They should be reachable. If they are excessively high or unrealistic, they will no longer encourage personnel. When restrictions are placed at low levels, workers have little difficulty. They do not push their abilities. As a result, control standards should be realistic; they should push and stretch individuals to achieve greater levels of performance while remaining inspiring.

Objective: A control system will be successful only if it is objective and impersonal. It shouldn’t be subjective or arbitrary. When standards are clearly defined, it is simple to assess performance. Vague standards are difficult to understand and, as a result, are not met properly. Controls should be accurate and impartial. People will dislike them if they are untrustworthy and biased.

Responsibility for failures: An effective control system must assign blame for failures.

Detecting deviations is pointless unless one understands where they are happening within the company and who is accountable for them. The control system should also specify what corrective measures are required to maintain actual performance consistent with planned performance.

Acceptable: Controls do not function unless people want them to. They should be acceptable to choose who they apply to. Controls will be acceptable when:

• Quantified
• Objective
• Attainable
• understood by everyone.
• Features
• Allows for Risk Management.

Risk management may be seen as a subset or specialized type of strategic management. Risk is the possibility of a future loss, and risk management entails developing numerous tactics to battle the risks, making it a kind or variation of strategic management.

This kind of strategic management enables the identification and elimination of company risks caused by numerous hazards.

Conscious Process

Strategies are the result of our evolved conscience and intelligence, which we humans proudly own and use. Strategic management requires the use of both the head and the heart, and it is not a regular, continuous process. It needs a high level of ability and expertise, as well as the complete application of one’s conscience.

Requires Foresight

The future is unknown. We cannot foretell what will occur. However, based on the knowledge that is accessible to us, we will be able to make some assumptions about the future.

For example, discovering that the item XYZ causes cancer might lead to a fairly logical conclusion that the item XYZ will be outlawed in the near future. This premise helps us to avoid investing in anything directly connected to XYZ.

Drives innovation.

Strategy development is a complex process that necessitates making the most of frequently highly constrained settings. This promotes creativity and enables managers to approach challenges from several perspectives and solve them more effectively. After all, need is the root of all innovations.

Strategic management is a hard process that takes years of expertise and innate talents to be carried out effectively. The process is widespread and essential to every organization. It is a discipline in and of itself, requiring further study for those interested in pursuing a career in management.

Goal-oriented Process

Strategic management is a technique that focuses on goals. The process is carried out with the objective and goal of examining the different parts using SWOT analysis and other tools, and developing a plan or strategy that successfully enables the firm to navigate around every obstacle and capitalize on its strengths.

This technique also helps to make all other corporate processes more goal-oriented.

Facilitates decision-making.

Strategic management is critical for making significant choices. When a manager makes a choice, he must consider how it will affect the broader strategy and trajectory of the firm.

Thus, the strategies were created to serve as a guide for making efficient and precise selections.

Primary Process

Strategic management is the central process in every firm. The strategies that the firm must use in its actions are produced from the outset, and it is only after the strategy has been created that subsequent processes may begin using the strategy as their foundation.

Pervasive Process

Strategic management is a widespread process that exists at all levels of the organization.

Top-level management develops fundamental strategies for the whole firm, while lower-level business units create plans to effectively attain the overall aim as given forth by top-level management.

Dependent on personal qualities

The above two arguments make it abundantly evident that Strategic Management is strongly reliant on the human attributes of the managers in top-level positions.

These human traits, which include skills and experience gained through years of job and observation, cannot be transmitted via training or coaching sessions and need lengthy periods of practical exposure unless the individual is born with the ability to strategize (which is uncommon).