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| Strategic Cost Management - Searching For True Customer Profitability and Value |
Strategic Cost Management (SCM)...has not got as much good PR as Activity Based Costing or other cost management paradigms. Strategic cost management emerged from the work on Value Chain by Porter and an extension of activity based costing , cost behaviour and the corresponding cost driver analysis.
In addition to merging some of the thinking on throughput and value chain there was a general dissatisfaction with the metrics used to measure the financial performance of business. The search for true value to business had come of age.
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I have included two reference articles which if you can read now then please do, to do so scroll to the end of this article to find them, which will give you further context to this article. Join us later...ok see ya. Right they've gone...roll your sleeves up. Here's the science bit. In the good old days cost accounting for customer/channel profitability was done like this.
Selling, general and administrative costs along with product costs were organised in a cost structure (chart of accounts) and allocated to different channels (the channel dimension members) based on net revenue. No big surprises here.
Then in the 1980's the new craze of Activity Based Costing (ABC) brought a new perspective. The costs were categorised by activity generating (Activity costs) or non-activity generating (Material costs). It was assumed costs were product driven and channel and customer cause and effect (drivers) were secondary or ignored.
In Strategic Cost Management we had the recognition that channel and customer have a cause and effect impact. So costs purely considered channel or customer related can be driven by the appropriate drivers to the appropriate cost objects.
In strategic cost management with Big Data. The costs are categorised into
1) Activity Costs (Not event driven) - costs directly attributed primarily to activities in pursuit of the companies value chain.
2) Non-Activity Costs (Not event driven) - costs not directly attributed to activities (material, capital expenditure, accruals etc)
3) Event Driven Costs - customer related activity which may or may not give rise to business activity but generate costs which may not be captured if they net off for instance (a customer return and full refund in the same reporting period for instance) Event driven costs are more likely to increase in frequency in cloud based systems with SaaS (software as a service) where subscription/usage based pricing models are in place.
Deloitte in a published article discussed the maturity cycle of Strategic Cost Management in the context of complexity vs value add.
If we add the Big Data dimension to the Deloitte chart, we can look at where the SAP PCM Standard and Hadoop framework models fall on the chart.
Strategic cost management does represent a paradigm shift as it leverages the advances in big data, hadoop frameworks, cross-functionality, and customer focused approach which is all the rage now. The evolution of big data has been aligned with the maturity model for strategy management which have become integrate, adaptive and data driven.
The Strategy Management maturity model from a compliance driven strategy to an integrated enterprise strategy.
Strategic Cost Management provides us with the linkage between Strategy, People, Product and Process.
At a more detailed level we can analyse how this framework works in phases
Strategic Cost Management provides the insight with cost information for a integrated strategic business management.
Looking at strategic management across the 9 domains of business management we can see how the cost information provides a measure of value versus risk to provide enterprise wide strategic governance.
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The Author: Michael Mkpadi
About:
Business Planning and Consolidation System Manager
Extensive experience in Activity Based Costing and other cost allocation methodologies. Performance Management Analysis and Reporting (SLR,PLIC,Dynamic Insight) experience. Scorecards, Shared Service Costing, Whole Life Costing, Cost Benefit Analysis, Process Re-engineering. Profitability and Overhead analysis.
Leading multiple Enterprise Performance Management Projects. Experienced practitioner for Quality Assurance on Performance Management, Business Intelligence and Enterprise Information Management at Enterprise level. SAP Author of SAP Profitability and Cost Management - Modeling (Ebite Series) Strategic Methodologies for Best Practice SDLC, including Agile and Quality Assured Project Delivery. SAP EPM Certified Consultant (BPC,PCM,SSM) SAP PCM Pre-Sales Certified Consultant SAP Hana Certified Consultant Specialties: SAP PCM, SAP BPC, BPC Script Logic, BPC Allocations, ABAP and BADI development, Prodacapo ABM, SAP DataServices, ETL, C++, VB, PHP Prince 2, Business Objects Universe Designer, DBA, Business Systems Engineering
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