Cost management

Cost Management is the process whereby companies use cost accounting to report or control the various costs of doing business.

The term cost management is widely used in business today. Unfortunately cost management has no uniform definition. Cost management generally describes the approaches and activities of managers in short run and long run planning and control decisions that increase value for customers and lower costs of products and services. For example, managers make decisions regarding the amount and kind of material being used, changes of plant processes, and changes in product designs. Information from accounting systems helps managers make such decisions, but the information and the accounting systems themselves are not cost management.

Cost management has a broad focus. It includes – but is not confined to – the continuous control of costs. The planning and control of costs is usually inextricably linked with revenue and profit planning. For instance, to enhance revenues and profits, managers often deliberately incur additional costs for advertising and product modifications.

Cost management is not practiced in isolation. It is an integral part of general management strategies and their implementation. Examples include programs that enhance customer satisfaction and quality as well as programs that promote new product development. Many cost management concepts are inevitably intertwined with manufacturing and production concepts, such as lean accounting, value chain analysis, throughput accounting, theory of constraints, etc.

See also

*Cost overrun
*Optimism bias
*Reference class forecasting


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