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The term ‘Cost Management’ is in vogue in business jargon these days. Unfortunately, no specific definition has been available to entirely cover all the aspects of cost management. It is a highly dynamic concept. To put the concept of cost management in a nutshell, it comprises the approaches employed by the management of a business both in the long-run and short-run to plan and take decisions that lower the cost of production for the management and ultimately enhance the value for the customers.
This piece of writing discusses the concept, scope and core objectives of cost management.
Cost management is the process where the management of a business initiates planning, controlling and taking decisions in the direction of improving the cost leadership of the business. Cost management includes the tasks of generating cost information and its usage to control the expenses of the product or service offered by the organization. To successfully execute the task of cost management, a regular supply of reliable cost information is required, which can be clearly and quickly communicated to the concerned departmental managers. The information so generated should highlight the cause and purpose of concurrence of cost.
Cost accounting is the accounting process of ascertaining the cost of a product or an activity. Here, the accounting is done with a view to classification, analysis, interpretation and control of cost. It measures the operating efficiency of an enterprise. Cost Accounting[1] is aimed at providing the cost data, reports and statements to the management in order to assist them in making financially wise decisions.
The scope of cost management is quite expansive and includes the following aspects within its scope:
Following are the major purposes and key objectives of Cost Management for the growth of any business:
For a business to reap the benefits of cost management, it is necessary that cost management is adopted as a policy by the management. The Japanese were the first who internalised the practice of cost management, and the practice has become universal now. Cost management involves the process of cost accounting to report the costs incurred in doing business and consequently to control the same.
Read our Article: Importance of Cost Management for Business
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