Strategic Cost Analysis

Strategic Cost Analysis helps companies identify, analyse, and use strategically important resources for continuing success and growth of the business.

This type of analysis may be used to review the overall direction of the company as the result of a merger, acquisition or take-over. It may be part of a strategic planning exercise or may simply be necessary as a major investment or divestment decision is to be made. It can also be used to provide consistent information for cost/benefit evaluations.

Activity-based Costing (ABC) can be used to provide the cost data required to focus attention on those factors that determine the expenditure on key projects or activities. It can help in the cost/benefit analysis of individual projects and hence assist the prioritisation of alternative projects, managing resources to maximise the return on investment in line with the strategic direction of the institution.

It can be used to determine when costs should be incurred (such as, when to diversify and move into a new business area). This will enable management to manage costs on the basis of spending (the investment in a new market or business activity) not consumption (the operation of the business).

An organisation creates a competitive advantage through the use of resources to provide products and services which meet customer needs. The resources consumed to create these attributes are not free, and the effective use of the resources is critical in any competitive environment. The value of a cost management system comes from the way management uses it to support decision making, including decisions about long-term strategy.

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