TOTAL COST MANAGEMENT – A PANORAMIC VIEW
Costs are an inevitable part of economic value addition and creation at a macro and micro levels. The same applies to business enterprises. In the earlier days attempts were made rightly to create an analytical and measurement mechanism which got organised into Cost and Management Accounting principles and practice. Over a period of time the need was repeatedly felt for strategic and decision support to a greater degree.
Hence about three decades back the direction modified and changed and movement towards strategic cost management started and proceeded rapidly. The resources used and their impact on costs threw up a number of improvement opportunities. The business costs measured started getting fitted properly with the strategy and tactics of the enterprise. Cost reduction became a major exercise at this stage. This led to the development of a large number of relevant and appropriate cost management tools to track efficiency of decisions and to project scenarios for the future.
The key conceptual attempt was to measure the cost implications and take right decisions not just from the conventional volume basis but to include many other dimensions like Differentiated Cost Leadership, Global outsourcing, life costs, value cost analysis, New product development and target costs etc. Activity based Costing and Management which led the drive any way created useful thinking and analysis initially and got modified to suit different needs. The newer direction and decision tools helped Managers, Entrepreneurs and Macroeconomic decision makers to affirm their faith in these methods. Also increased globalisation facilitated this.
The above led to strategy inclusion and the term 'Total Cost Management ' became not only fashionable but true to its spirit actually became the driver of success. This integrative term as practiced today involves all the major steps shown earlier in the narrative above. while large enterprises adopted the others found it little more difficult to adopt and get the benefits. The current trend is towards use of strategic cost thinking, use of some or all techniques for decision making and building a culture in the organisation.
Sustainability and managing risks is very much getting integrated along with multiple reporting methods to help all stakeholders. The good news is that this has come to stay as an Integral part of business management and what would make this more meaningful is the practice across all economic dimensions irrespective of where in the value chain or size etc. the conceptual development and academic research continues to flourish with active participation of actual successful and "not so successful" case studies. The world has the benefit of the accumulated Cost and Management analytical knowledge and the newer strategic dimensions to make it wholesome and beneficial.
- P. Thiruvengadam, is the mentor of CII TCM Division. He is also on the board of several public and private companies as an Independent Director.