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A cost management system is composed of three primary elements:
1. Motivational elements:
• Performance measurements
• Reward structure
• Support of organizational mission and competitive strategy
• Reward structure
• Support of organizational mission and competitive strategy
2. Information elements:
• Support of budgeting process
• Emphasis on product life cycle
• Differentiation of value–added and non–value–added activities
• Support of cost reduction initiatives
• Focus on cost control
• Assessment of core competencies and analysis of make–or–outsource decisions
• Emphasis on product life cycle
• Differentiation of value–added and non–value–added activities
• Support of cost reduction initiatives
• Focus on cost control
• Assessment of core competencies and analysis of make–or–outsource decisions
3. Reporting elements:
• Preparation of financial statements
• Provision of details for responsibility accounting system
• Provision of details for responsibility accounting system
The elements as a whole must be internally consistent, and the individually selected elements must be consistent with the strategies and missions of the subunits. Different aspects of these elements may be used for different purposes. For example, numerous measures of performance can be specified, but only certain measures will be appropriate for specific purposes
